Compton City Council
March 15, 2022

Given the City's continuing budget deficit, City Management should have maintained rigorous internal controls over cash handling and reconciliation processes. Instead, the City failed to implement basic internal controls in its cash receipt process, resulting in a loss of millions of dollars badly needed by the City. Some basic internal control deficiencies are as follows:
 Failure to implement proper segregation of duties, which is key to protecting assets such as cash. The former Deputy Treasurer was allowed to perform the first cash count and reconcile count by himself, and also to complete all necessary paperwork for the deposit process. This internal control deficiency provided him with the opportunity to embezzle cash;  Failure to complete monthly bank reconciliations in a timely manner (see Finding SCO Finding 8); and
 Failure to implement read-only access for online monitoring of bank activity in the City Controller's Office. An employee assigned to monitor the City's banking activity might have been able to quickly identify discrepancies between the total cash deposited and the total cash amount stated in the Cashier Count Reports.

Recommendation: Although the City stated that it has implemented several new procedures within the Treasurer's Office, and that the City Controller's Office has implemented read-only access for monitoring bank activity, these procedures have yet to be incorporated in its formal Policy and Procedures manual. The SCO recommended that the City update its formal Policy and Procedures manual to incorporate the recently implemented internal control procedures, and complete these updates as soon as possible.

E+P concurs with the SCO finding and recommendation.

WHEREAS, This audit finding and recommendation demonstrated the need for the implementation of policies affecting internal controls. The policies attached to this resolution are policies primarily affecting the City Controller’s Department Operations. Policies that are to be implemented City-wide will be brought before the City Council in another staff report and resolution.

WHEREAS, Other findings and recommendations listed in the FY2019 Single Audit report demonstrate the need for many of the provisions contained in these policies, such as having succession planning procedures, as well as how to avoid inciting repeated or new audit findings in the future. Other specific audit finding recommendations are listed below according to their finding number, which has been obtained from the FY2019 Single Audit report:
#2014-072B – Commitment to Competence (SD):

Recommendation: We recommend that the City implement a remedial action plan to adequately staff the departments that are short on staff. In addition, we recommend that the City implement policies to address the importance of experience and proper training of back-up staff when regular staff members are not available. #2014-074B – Commitment to Competence (SD):

Recommendation: We recommend that the City implement a remedial action plan to adequately staff the departments. Most importantly, the City Controller’s Office should be staffed with qualified and experienced individuals who can contribute immediately to the performance of its accounting functions. In addition, we recommend that the City implement policies to address the importance of experience and proper training of back-up staff when regular staff member are not available. Inexperienced staff may cause material impact in the City’s operations in terms of incurring additional costs, Resolution No. __________

delaying the processing of financial transactions, and failing to keep City Management and the City Council updated with accurate information. #2014-083B – Management Philosophy and Operating Style (SD):

Recommendation: The SCO recommends that the City evaluate its hiring practices for its upper management positions. In addition, we recommend that the City develop a succession plan that will help it to ensure continued leadership even during management turnover.
#2014-093B – Assignment of Authority and Responsibility (MW):

Recommendation: We recommend that the City assess its current processes and implement policies and procedures to segregate incompatible functions. #2014-100B – Risk Identification (MW)
Recommendation: We recommend that the City start doing risk assessments to be able to identify and properly address risks.
#2014-101B: Risk Identification (SD)
Recommendation: We recommend that the City put mechanisms in place to aid in anticipating, identifying, and reacting to routine events that affect the achievement of objectives.
#2014-107B: Policies and Procedures (General Applications) (MW) Recommendation: We recommend that the City update its formal Policy and Procedures manual to incorporate the recently implemented internal control procedures, and complete these updates as soon as possible. #2014-108B: Policies and Procedures (General Applications) (MW) Recommendation: We recommend that the City continue to review and update its Administrative Policies and Procedures manuals to ensure consistency with current processes and organizational structure; and perform periodic and ongoing reviews to ensure proper documentation, accuracy, and completeness in its financial transactions and records. When completed, the updated Administrative Policies and Procedures manuals should be readily available to all responsible employees. The manuals should clearly state the authority and responsibility of all employees, especially the authority to authorize transactions and the responsibility for the safekeeping of assets and records.
#2014-111B: Common Categories of Control Activity (MW)
Recommendation: We recommend that the City assess its current processes and implement policies and procedures to segregate incompatible functions. #2014-114B: – Common Categories of Control Activities (MW) Recommendation: We recommend that City Management and department heads evaluate if proper segregation of duties are in place. If not, mitigating controls should be developed and implemented to decrease the risk of error or inappropriate actions. #2015-115B: – Common Categories of Control Activities (SD) Recommendation: We recommend that the City continue to review and update its Administrative Policies and Procedures manuals to ensure consistency with current processes and organizational structure; and perform periodic and ongoing reviews to ensure proper documentation, accuracy, and completeness in its financial transactions and records.

Resolution No. _______

#2014-117B: – Information (SD)
Recommendation: We recommend that City Management communicate and manifest the importance of timely communication in the policies and employee manuals. #2014-122B – Communication (BP)
Recommendation: We recommend that the City has forms and means of communication in place to be able to communicate important information with employees and others.
#2014-130B – On-Going Monitoring (BP):

Recommendation: We recommend that the City have periodic internal control meetings with employees to gain insights of the employees’ perspective and get some feedback. #2014-134B – Separate Evaluation (MW):

Recommendation: We recommend that any deficiencies found during internal audit evaluations are promptly resolved to reduce the risk of subsequent effects. #2014-136B – Report Deficiencies (SD):

Recommendation: We recommend that issues and deficiencies are directly communicated to the responsible personnel and elevated to someone at least a level higher.
#2014-060A & #2015-020: – Capital Assets (MW)
Recommendation: We recommend that the capital asset subsidiary ledger and the general ledger be brought up to date. It may be necessary to hire an outside company to perform a complete inventory of assets and to establish the estimated cost basis and date of acquisition, if sufficient records are not available to reconstruct the asset detail. In addition, we recommend that capital asset software be obtained to maintain accountability of capital assets and to compute depreciation. Currently, Excel spreadsheets are being used for this purpose.

We also recommend the City develop and implement monthly and year-end closing checklists for staff to use as a guide. The City could require staff sign off on steps as completed and a supervisor approval of the completed checklist on a monthly basis.

Such a checklist would prevent routine entries from being forgotten. #2014-087B – Management Philosophy and Operating Style (MW):

Recommendation: We recommend that the City establish City-Wide procedures for fixed asset accounting, management, control and accountability. Procedures should also be established for proper financial accounting and reporting in accordance with GAAP, GASB, and other applicable government accounting standards; A complete and accurate listing of fixed assets of significant value; and maintenance of fixed asset records for the life of each asset, which should be retained in accordance with the City’s records retention program.
#2015-021: – Construction in Progress – Lack of Status Reports (SD) Recommendation: The City should strengthen review procedures for invoices to ensure that City is only paying for actual work performed by contractors. #2019-004 & #2018-006 & #2015-002 & #2104-007: Equipment and Real Property Management – Maintenance of Property Records (MW, NC)
Recommendation: We recommend the City maintains complete property records, which include a description, serial number or other identification number, source, title holder, acquisition date, cost, percentage of federal participation in the cost, Resolution No. _______

location, use and condition, and any ultimate disposition data including the date of disposal and sale price of the property.
#2019-002– Program Income – Identification, Determination, Assessment, and Recording (MW, NC):

Recommendation: We recommend that the City strengthen their procedures in relation to identifying, determining, assessing, and recording program income. The City should have procedures in place to accurately identify program income as they are received and are appropriately recorded in the CDBG fund as such and into IDIS.

The City should ensure that program income received should be applied first. #2019-011 & #2018-015– Accounts Receivable Roll Forward Balances (SD):

Recommendation: The City should implement and maintain procedures to periodically review balance sheet general ledger accounts to ensure that prior period accruals are properly reversed, if necessary, and to review account balances for reasonableness. #2019-014 & #2018-020 – Prepaid Expenses and Roll Forward Balances (SD):

Recommendation: The City should implement and maintain procedures to periodically review balance sheet general ledger accounts to ensure that prior period accruals were properly reversed and not posted against incorrect accounts. #2019-017: – Interfund Balances (SD)
Recommendation: The City should establish policies and procedures over interfund balances, train and designate staff track interfund balances, and ensure these balances are tracked and reconciled timely.
#2018-021: – Interfund Balances (SD)
Recommendation: The City should establish policies and procedures over interfund balances, train and designate staff track interfund balances, and ensure these balances are tracked and reconciled timely.
#2019-019: N/A
#2018-026: – Accrued Interest (SD)
Recommendation: The City should ensure that its staff is provided with the appropriate training in order to successfully perform their assigned duties, including appropriate governmental accounting training. In addition, work performed by staff members should be reviewed by someone with a firm understanding of governmental GAAP. #2019-031: – Journal Entries (SD)
Recommendation: We recommend the City strengthen the review process for journal entries as to accuracy, classification, and period of performance in accordance with governmental GAAP prior to posting.
#2018-019: – Utilities Allowance for Doubtful Accounts (SD) Recommendation: The City should implement and maintain procedures to periodically review balance sheet general ledger accounts to ensure that balances are properly adjusted. We recommend the City establish procedures in place to promptly identify uncollectible accounts and perform collection attempts. #2018-021: – Interfund Balances (SD)
Recommendation: The City should establish policies and procedures over interfund balances, train and designate staff track interfund balances, and ensure these balances are tracked and reconciled timely
#2018-030: – Payables and Expenses – Deposits (SD)
Resolution No. _______

Recommendation: The City should maintain a deposits schedule and review it periodically to ensure that revenues are recorded in the correct period. #2018-034: – Bonds Payable (SD)
Recommendation: Payments on the 1995C Accretion Bonds should be properly recorded as interest and principal in accordance with the accreted value schedule. #2018-035: – Bond Refunding (MW)
Recommendation: The City should ensure that infrequent transactions are reviewed in detail by individuals with a firm understanding of GASB standards. #2017-013, #2016-009, #2015-012, & #2014-045: - Bank Reconciliations (MW) Recommendation: The City should dedicate appropriate resources and have City employees trained to perform monthly bank reconciliations for all City bank accounts.

Subsequently, a documented review and approval of the bank reconciliations should be performed in a timely manner to ensure that any discrepancies are discovered and addressed appropriately.
#2015-022: - Construction in Progress – Retentions (SD) Recommendation: The City should strengthen review procedures for invoices. Also, construction in progress should be separately tracked to ensure that all retention liabilities are properly recorded, tracked, and cleared as appropriate. #2015-023:- Retentions Payable (SD)
Recommendation: The City should establish procedures, assign staff, and provide adequate training to properly record and track retention payable. The City should establish policies and procedures to ensure that when an invoice for a retention is paid, the retention payable is relieved in the same period.
#2015-024: – Long-term Debt – Government-wide (MW)
Recommendation: The City should maintain government-wide funds during the fiscal year or at least on a period basis. This would aid in better overview of outstanding obligations and can contribute to more effective and accurate budgeting. #2015-025: – Long-term Debt – Discount on Bonds (SD)
Recommendation: The City should have month end and/or year-end checklists to ensure that all routine journals are prepared, approved, and posted. Periodic reviews of the financial statements would also allow the detection of unusual items (no movement in long-term obligations and related accounts). #2015-026: – Accruals (SD)
Recommendation: Review of year end balances would have allowed the City to discover the error due to the unusual balance in one account and a zero change from one year to the other.
#2015-028: – Accrued Payroll (MW)
Recommendation: The City should provide proper training to staff to allow them perform their day-to-day duties effectively. Adequate and timely review of the journals prior to posting would also allow for errors to be detected and corrected in a timely manner.

Resolution No. _______

#2015-029: – Accrued Liabilities (MW)
Recommendation: The City should implement and maintain procedures to identify and record accrued liabilities. This may require additional software or training on the use of current software.
#2014-013: – Internal Control over Journal Entries – Supporting Documentation (MW) Recommendation: Adequate support that explains the purpose of the journal entry and from where the amounts are derived should be attached to the journal voucher to ensure existence and accuracy.
#2014-014: – Internal Control over Journal Entries – Maintenance of Records (MW) Recommendation: The process of preparing journal entries should be formalized in a policy. Items that can be included in the policy are who can prepare journal entries, who can approve, dollar limits to approvals, what supporting documentation should be attached, how the entries are numbered and filed for future reference etc. #2014-015: – EFT Journal Entries (MW)
Recommendation: EFT journal entries should be documented as reviewed and approved by the Controller or appropriate personnel prior to posting and disbursement. #2014-046: – Cash Account Adjustments (MW)
Recommendation: The City should not be posting journals to cash accounts unless absolutely necessary for specifically approved standardized transactions per City policy. Furthermore, journal entries to cash accounts should be reviewed and approved by the appropriate level before posting. Documentation for support in compliance with policy should be attached to the entry.
#2014-057A: SCO Finding 16 – The City lacks adequate staff performing critical functions
Recommendation: The SCO recommended that the City implement a remedial action plan to adequately staff the noted departments. Most importantly, the City Controller's Office should be staffed with qualified and experienced individuals who can contribute immediately to the performance of its accounting functions. In addition, the SCO recommended that the City implement policies to address the importance of experience and proper training of back-up staff when regular staff members are not available.

Inexperienced staff may cause material impact in the City's operations in terms of incurring additional costs, delaying the processing of financial transactions, and failing to keep City Management and the City Council updated with accurate information. #2014-060A: – Capital Assets (MW)
Recommendation: We recommend that the capital asset subsidiary ledger and the general ledger be brought up to date. It may be necessary to hire an outside company to perform a complete inventory of assets and to establish the estimated cost basis and date of acquisition, if sufficient records are not available to reconstruct the asset detail. In addition, we recommend that capital asset software be obtained to maintain accountability of capital assets and to compute depreciation. Currently, Excel spreadsheets are being used for this purpose.
#2014-062A: – Turnover and Lack of Consistent Leadership (MW) Recommendation: In line with SCO’s comment, we recommend the City evaluate its hiring practices for its upper management positions. In addition, the City should develop a succession plan that will help it to ensure continued leadership even during management turnover.

Resolution No. _______

#0214-071B: – Integrity and Ethical Values (MW)
Recommendation: We recommend that the City implement a remedial action plan to adequately staff the departments that are short on staff. In addition, we recommend that the City implement policies to address the importance of experience and proper training of back-up staff when regular staff members are not available. #2014-112B: – Common Categories of Control Activities (SD) Recommendation: We recommend that the City periodically count controlled items and to compare these counts with control records to ensure accuracy and integrity of the recorded amounts.

WHEREAS, Each of these finding numbers and recommendations display deviation from at least one of the five elements of proper internal control. The five elements of proper internal controls are (1) Control Environment, (2) Monitoring Activities, (3) Risk Assessment, (4) Control Activities, and (5) Information and Communication. The provisions in these policies, if implemented properly by staff, will help minimize risk for the City as they cover a wide array of situations that pose a risk to proper internal control and the City’s financial position and operations. It is also important to know that policies may need to change to keep up with current environment or any unforeseen circumstances.

WHEREAS, The fiscal impact of these policies is to improve the City’s internal controls surrounding General Accounting, Bank Reconciliations, and Capital (Fixed) Asset controls for greater monitoring, information and communication, control environment, control activities, and risk assessment. When these internal controls are improved the result will be a more favorable impact on the financial position of the City. Additionally, when these policies are fully implemented, a result of having less audit findings will be expected.

WHEREAS, The result of not receiving and filing these policies would be the continuance of not having sufficient guidance for staff for proper internal control policies and procedures in the areas of General Accounting, Bank Reconciliations, and Capital (Fixed) Assets handling. This would result in reoccurrence of audit findings.

NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF COMPTON DOES HEREBY RESOLVE AS FOLLOWS:

Section 1. That the City Council receive and file the attached policies.

Section 2. That a copy of this Resolution shall be filed in the offices of the City Clerk, City Attorney, City Manager, and City Controller.

Section 3. That the Mayor shall sign and the City Clerk shall attest to the adoption of this Resolution.

ADOPTED this ____________ day of _____________, 2022.
________________________________

MAYOR OF THE CITY OF COMPTON
RESOLUTION NO. ___________________

ATTEST:
___________________________________

CITY CLERK OF THE CITY OF COMPTON

STATE OF CALIFORNIA )
COUNTY OF LOS ANGELES ) ss

CITY OF COMPTON )
I, Alita Godwin, City Clerk of the City of Compton, hereby certify that the foregoing Resolution was adopted by the City Council of the City of Compton, signed by the Mayor and attested by the City Clerk at a regular meeting thereof held on this______ day of ________, 2022.

That said Resolution was adopted by the following vote, to wit:

AYES: COUNCILMEMBERSNOES: COUNCILMEMBERSABSTAIN: COUNCILMEMBERSABSENT: COUNCILMEMBERS- ____________________________________

CITY CLERK OF THE CITY OF COMPTON

FIXED ASSETS POLICY
Section 1: Introduction and Purpose…………………………………………….3
Section 2: General Policy………………………………………………………..3
Application…………………………………………………………...3
Definitions…………………………………………………………….3
Responsibility…………………………………………………………4
Violation of Policy……………………………………………………8
Capital Asset Definition………………………………………….……8
Capitalization Threshold………………………………………………8
General Valuation Basis…………………………………………….....8
Donated Inventories……………………………………………………9
Section 3: Capital Asset Categories and Capitalization…………………………10 A. Land…………………………………………………………………10
B. Construction in Progress……………………………………………10
C. Buildings and Building Improvements……………………………..11
D. Improvements Other Than Buildings………………………………12
E. Machinery and Equipment…………………………………………13
F. Infrastructure…………………………………………………….…14
G. Other Capital Assets…………………………………………….…15
Section 4: Asset Classification/Accounting System……………………….…16 Section 5: Depreciation Methodology…………………………………………16

Section 6: Tagging of Assets…………………………………………………16
Section 7: Impairment of Capital Assets…………………………………….17 Indicators…………………………………………………………17
Examples…………………………………………………………18
Section 8: Physical Inventory……………………………………………….19
Section 9: Transfer of Assets to Another Department or Location…………19 Section 10: Disposition of Assets…………………………………………..20
Section 11: Temporary Storage of Surplus Property……………………….22 Section 12: Proceeds………………………………………………………..23
Exhibit A……………………………………………………….24
Exhibit B……………………………………………………….28
Exhibit C………………………………………………………30

SECTION 1: INTRODUCTION AND PURPOSE
The purpose of this policy is to ensure adequate control and appropriate use of City assets. Further, these policies are intended to provide the methods for classifying, valuing, and accounting for capital assets. Capital asset accounting serves a variety of purposes to the City, some of the more important reasons being:

1. To substantiate valuations of capital assets in accordance with Generally Accepted Accounting Principles (GAAP) for financial reporting.

2. To assign responsibility for the custody and proper use of specific assets to City departments.

3. To establish systems and procedures to protect capital assets from loss or theft.

4. To assist in the formulation of acquisition and retirement policies through accumulation of data such as cost, useful life, and depreciation.

SECTION 2: GENERAL POLICY
It is the policy of the City that all City capital assets shall be properly accounted for, reported, handled, and maintained. Additionally, these assets should be only used for appropriate City business operations. Asset handling must conform to proper internal controls for safe guarding, avoidance of all conflicts of interest, and the avoidance of the misappropriation of City assets. All City Departments are subject to the provisions of this policy.

Application:

This policy applies to all Departments and Divisions of the City of Compton (the City).

Definitions:

Owner Departments – Departments that have the responsibility to purchase, maintain, and replace assets
User Departments – Departments that have the responsibility to use and/or have custody of, City assets during the performance of City operations Impairment – Asset impairment is a significant, unexpected decline in the service utility of a fixed (capital) asset, where the events or changes in circumstances that lead to the decline in service utility (or value) are not considered normal and ordinary. The decline in service utility must appear to be permanent.

Donation - the transfer of ownership of property for no consideration or for a value less than the reasonable fair market value of the property.

Responsibility:

1. In regards to capital assets, the City Controller or Designee, is responsible for the following:
 The implementation and administration of this policy.  Accounting and reporting of capital assets.
 Tracking capital assets depreciation and preparing a capital asset roll-forward schedule for inclusion in the financial statements if needed.  Perform a review of purchase records, sales proceeds, grant agreements, internal engineering consulting charges, communications with staff, listings compiled by staff, appraisal or engineering records, and perform methods deemed necessary for the completeness and accuracy of fixed asset data.
 Make appropriate and fair calculations, estimates, and representations with respect to fixed assets while relying upon information from City staff, purchase documentation, City Council meetings, minutes, etc…
 Gather sufficient information from City staff regarding the sale and disposal of assets to ensure appropriate chain of custody of City assets, fairness of the sale to the City, proper accountability for sale proceeds, and adherence to any legal or regulatory restrictions placed on those assets.
 Assigning an asset number to each individual asset that is being tracked within the asset tracking system.
 Tagging fixed assets when practical
 Performing annual asset inventory and condition assessment  Gathering enough information to estimate the future replacement date of each asset.
 Reviewing this policy and making recommendations for change, as needed.  Have a back-up protocol to ensure continuity and timeliness of operations during vacations and other leaves.
 Must actively participate in and support the implementation of the internal controls contained in this policy and all other policies, and immediately follow up if deviation

is suspected, in order to avoid the appearance and existence of fraud, misappropriation of City assets, or of conflicts of interest.  Additional responsibilities are stated in the remaining sections within this policy.

2. Owner Department Heads or their Designees are responsible for:
 The purchase, maintenance, condition assessment and replacement of capital assets that have been assigned to them by the City Manager or Designee in order for the City to continue to have efficient and effective business operations.  Keeping asset location and maintenance records regarding the Capital assets assigned to them
 Informing the City Controller or designee, if assets have been purchased with grant funds or any other funds with legal or regulatory restrictions attached to them  Assisting the Budget Officer or designee with the capital budgeting process  To provide honest, fair, and accurate information to the City Controller or designee for their appropriate and fair calculations, estimates, and representations to be made regarding Capital Assets, including ancillary costs of those assets.  Every year, a complete inventory of capital assets will be distributed to every “owner” department by the City Controller’s Department. At that time, all items on the inventory must be physically verified by the owner department head or designee and corrections or changes made on the inventory sheets.  Tracking other equipment that does not meet the capitalization threshold which shall be inventoried for information purposes only. Such other inventories could include but are not limited to personal computers, printers, water meters, etc.  Assisting the City Controller or designee with tagging of assets  Have a back-up protocol to ensure continuity and timeliness of operations during vacations and other leaves.
 Must actively participate in and support the implementation of the internal controls contained in this policy and all other policies, and immediately follow up if deviation is suspected, in order to avoid the appearance and existence of fraud, misappropriation of City assets, or of conflicts of interest.  Additional responsibilities are stated in the remaining sections within this policy.

3. User Department Heads, or their Designees are responsible for:
 Safeguarding capital assets and other inventories under their control.  The user departments must all report any asset impairments or changes in asset condition to the owner department and to the City Controller’s Department.  Providing the owner department with the opportunity to conduct asset maintenance when needed
 Each of the User departments and divisions must designate a steward (“Property Steward”) for each piece of property in their custody. The person to whom the assets have been assigned for safekeeping will be the contact person for each property within the department. This person will become the focal point for questions regarding availability, condition, and usage of the asset, as well as the contact during the physical inventory process.
o Each of the operating departments has the authority, accountability, and responsibility for the property issued to, or purchased by, their respective departments.
o When a Property Steward is to be replaced for any reason, the Department head shall notify the City Controller’s Department. City Controller Department staff will then provide a current capital asset listing so that a joint review of the department’s assets may be conducted by the outgoing and incoming Property Steward. The completed and verified joint review shall be forwarded to the Department Head and any changes submitted to the City Controller Department within thirty (30) days after the appointment of the new Property Steward.
 Have a back-up protocol to ensure continuity and timeliness of operations during vacations and other leaves.
 Must actively participate in and support the implementation of the internal controls contained in this policy and all other policies, and immediately follow up if deviation is suspected, in order to avoid the appearance and existence of fraud, misappropriation of City assets, or of conflicts of interest.  Additional responsibilities are stated in the remaining sections within this policy.

4. All Department Heads, or their designees, are responsible for:
 Ensure that proper budgeting and purchasing guidelines are followed;

 Ensure that capital assets are adequately controlled and used for appropriate City purposes.
 Have a back-up protocol to ensure continuity and timeliness of operations during vacations and other leaves.
 Must actively participate in and support the implementation of the internal controls contained in this policy and all other policies, and immediately follow up if deviation is suspected, in order to avoid the appearance and existence of fraud, misappropriation of City assets, or of conflicts of interest.  Additional responsibilities are stated in the remaining sections within this policy.

5. The Property Steward within the User department shall be responsible for:
 Ensuring that property is acquired, maintained, used, and disposed of in the City’s best interests by employees of the user departments.
 To maintain records of the receipt of the assets by departmental users, to examine the assets to make sure that no damage was incurred in transit and to make sure that the asset was received in working order.
 Shall cooperate with user department personnel, if needed, in arranging for necessary preventive maintenance and any needed repairs to keep the asset in working condition. Whenever the asset changes rooms, is transferred to another department, or is disposed of, the Property Steward must ensure this information is processed per the disposal/transfer guidelines.
 The Property Steward must ensure that departmental capital assets are kept up to date in the Inventory Records and notify the City Controller’s Department of any corrections which need to be made.
 At the end of the fiscal year, the City Controller’s Department will provide two copies of the capital assets list to the department Property Steward, including those that were purchased, transferred, or disposed of during the fiscal year. This listing will include all the property for which the user department is responsible. It is required that an inventory of the listed property be conducted, discrepancies be resolved, and the listing be signed by the Property Steward and the Department Head verifying the property on hand. The listing shall be signed by the Property Steward and approved by the user Department Head and then returned to the City Controller’s Department within ten (10) working days. A copy shall be retained by the user department Property Steward for their files.

Violation of Policy
The use of City (surplus- property that will be disposed of) property for personal use or gain is a violation of this policy and violators of this policy will be subject to disciplinary action up to and including termination. The removal of City (surplus) property for the purpose of taking personal possession or ownership is strictly prohibited. 4-11.10. SALE of CITY PERSONAL PROPERTY.

Whenever the city has any materials, supplies, equipment or other personal property which it no longer needs for municipal purposes, the City Manager shall provide for the sale, donation or destruction of such materials, supplies, equipment or other personal property by such means as he or she shall find most advantageous to the City. In the event such materials, supplies, equipment or other personal property has a sale value of more than $500, the City Manager shall obtain the consent and approval of the City Council before authorizing the sale, donation or disposal thereof.

Capital Asset Definition
Capital assets are major assets that have an initial useful life that extend beyond a single fiscal period. Capital assets may be either intangible (e.g., easements, water rights, software) or tangible (e.g., land, construction in progress, buildings, building improvements, improvements other than buildings, machinery and equipment and infrastructure).

The criterion for determining a capital asset will generally be based on estimated useful life and a “capitalization threshold”. The capitalization threshold is the monetary value established for classifying a capital asset.

Capitalization Threshold:

Capitalization thresholds for capitalizing assets is as follows: All acquisitions of assets whose value is $10,000 or more (except Land which is $1) and a useful life of three or more years shall be capitalized. Assets with a unit cost below this level will be expensed.

Acquisitions not meeting these criteria shall be expensed in their entirety in the fiscal year in which they are incurred. Similar Items of individual expense of less than $10,000 each will not be accumulated in the aggregate and capitalized.

General Valuation Basis
Capital assets should be accounted for at historical cost, or if cost is not practically determinable, an estimated cost at the time of acquisition should be used. The cost of the

capital asset should include all ancillary charges necessary to place the asset into its intended location and condition for use.

Ancillary charges depend on the nature of the asset acquired or constructed. They include costs that are directly attributable to asset acquisition, such as:
 Freight
 Other Transportation charges
 Site preparation expenditures
 Professional fees
o I.e.: Architectural and legal fees
 Legal claims directly attributable to the asset acquisition or construction o I.e.: liability claims resulting from workers or others being injured during the construction of an asset
o I.e.: damage done to the property of others as a direct result of the construction activities
 Title fees
 Closing costs
 Appraisal and negotiation fees
 Surveying fees
 Damage Payments
 Land preparation costs
 Demolition costs
 Insurance premiums during the construction phase
Donated Inventories:

Donated assets, donated works of art and similar items, and capital assets received in a service concession arrangement should be reported at their estimated fair value at the date of donation.

SECTION 3: CAPITAL ASSET CATEGORIES AND CAPITALIZATION
A. LAND
Definition: Land includes the investment in or ownership in real estate other than (1) buildings and improvements and (2) land acquired for street and road purposes. Land is the surface or crust of the earth, which can be used to support structures, and may be used to grow crops, grass, shrubs, and trees. It is recorded at historical cost and remains at historical cost until disposed (sold).

Capitalization: Land has an unlimited life; it should be capitalized but not depreciated. All land shall be capitalized without regard for significance of cost. The cost of land includes all expenditures in connection with its acquisition, such as:
• Purchase Price
• Appraisal and negotiation fee
• Title search fees
• Surveying fees
• Cost of consents
• Relocation costs
• Condemnation costs
• Clearing land for use
• Demolishing or removing structures
• Accrued and unpaid taxes at date of purchase
• Filing costs
• Right-of-way
Receipts from the sale of salvage should be credited against the land costs.

B. CONSTRUCION IN PROGRESS
Definition: Construction in progress (CIP) reflects the construction activity status of capital projects such as buildings, improvements and infrastructure additions, alterations, reconstruction, and installation that is substantially incomplete.

Capitalization: Because many capital projects take more than one year to complete, costs of incomplete projects are recorded to "Construction in Progress" until complete. The City Controller’s Department should contact all other City Divisions on a yearly basis to find out when capital projects had been completed and which are still pending to coordinate procedures to capitalize CIP to a completed asset class and begin depreciation. At

completion, City Controller’s Department staff will move projects from the CIP asset category into the appropriate asset category, and then start the depreciation process when the asset starts being used. Abandoned construction-in-progress (CIP) shall be written-off and removed from the records.

C. BUILDINGS AND BUILDING IMPROVEMENTS
Definition: A Building is a structure that is permanently attached to the land, has a roof, is partially/completely enclosed by walls, and is not intended to be transportable. Buildings are recorded at either acquisition cost or construction cost.

Building improvements are additions made to, or changes made in buildings, other than maintenance, to prolong life or to increase efficiency or capacity.

Capitalization: All buildings shall be capitalized without regard for significance of cost.

Building improvements with a value that exceeds $10,000 shall be capitalized. The cost of buildings and building improvements includes all expenditures in connection with their acquisition, such as:
• Purchase price or construction cost
• Grading of land
• Fixtures attached to the structure
• Architect and accounting fees
• Accident or injury costs
• Payment of damages
• Insurance during construction
• Cost of permits and licenses
• Cost of temporary buildings used during construction
The cost should be reduced for:
• Sale of salvage from materials charged against the construction • Discounts, allowances, and rebates
Remodels of office space are generally not capitalized because they represent a reconfiguration of an existing asset and do not result in extending the useful life or significantly increasing the value or utility of the building or structure.

Fixtures are permanent attachments to structures that are not intended to be removed and which function as part of the structure, such as heating and lighting fixtures or plumbing. Fixtures are capitalized as part of the structure during construction. If fixtures are added after the original construction, they must meet the $10,000 capitalization threshold before being designated as a capital asset.

Individual components of a system (such as cameras permanently attached to a structure as part of a security system meeting the capitalization threshold) that are necessary to get the system to a functional level, are capitalized as part of the overall system even if the individual component does not meet the capitalization threshold.

Treatment of costs subsequent to acquisition generally falls into three categories:
maintenance, betterments, and alterations:
• Maintenance costs are defined as expenditures that neither materially add to the value of property nor appreciably prolong its life, but primarily serve to retain value.

They do not add substantially to the property’s utility or capacity, but merely keep it in ordinary efficient operating condition for its existing purpose. Maintenance costs are not capitalized, even when they exceed capitalization thresholds. • Betterments are expenditures that materially add to the value of the property or appreciably extend its life. Betterments are characterized by providing increased utility or capacity to the property. Betterments of $5,000 or greater should be capitalized.
• Alterations are changes in the physical structure or arrangement of capital assets but do not result in extending the asset life or increased value. Many times, the cost of an alteration would not reach the capitalization threshold. Remodels and reconfigurations generally fall in this category. Alterations are not capitalized.

The decision as to whether an expenditure should be capitalized should begin with an evaluation of engineering, physical change, or other relevant factors apart from cost.

For projects having elements of both maintenance and betterment, the relative cost of each should be determined and the entire project treated according to the predominant component. Separate treatment may be required, at the discretion of the Finance Division, for projects having individually significant maintenance and betterment components.

D. IMPROVEMENTS OTHER THAN BUILDINGS
Definition: Improvements other than buildings are made to structures or land and are considered a betterment if the improvement is at the capitalization threshold or the

expenditure increases the life or value of the asset by twenty-five percent (25%) of the original cost or life period. These include:
• Irrigation Systems
• Pedestrian Improvements
• Parking Lot Improvements
• Park Improvements
• Creek Improvements
• Access Ramps
• Sewer Lift Station Rehab
• Drainage Improvements
Capitalization: Improvements other than Buildings with a value that exceeds $10,000 shall be capitalized. The cost of Improvements other than Buildings includes all expenditures in connection with their acquisition and construction and follow the same capitalization rules as indicated for “Buildings and Building Improvements.” E. MACHINERY & EQUIPMENT
Definition: Machinery and Equipment includes moveable personal property of a relatively permanent nature and of significant value such as machines, tools, vehicles, and the tangible asset cost of computer software, the benefits of which extend beyond five years from date of acquisition and rendered into service.

Capitalization: Machinery and Equipment purchased with a value of $10,000 or more per unit is capitalized. Improvements or additions to existing machinery and equipment that constitute a capital outlay or increases the value or life of the asset by twenty-five percent (25%) of the original cost or life should be capitalized as a betterment and recorded as an addition of value to the existing asset. The cost includes:
• Purchase price or construction cost less discounts
• Freight or other handling and shipping charges
• Sale, use or transportation taxes
• Installation costs
Other areas for consideration when capitalizing equipment include the following:

Computer software acquired or developed for internal use should be capitalized. Not all costs associated with the acquisition qualify for capitalization. Costs associated with the preliminary project stage of the acquisition of internal-use software should be expensed as incurred. Likewise, training costs and data conversion costs normally should be expensed as incurred.

Capitalizable costs include external direct costs of material and services consumed in developing or obtaining internal-use software. Such costs include those associated with the design of a chosen path, coding, installation to hardware, and testing. Upgrades and enhancements should be capitalized only to the extent that they increase the functionality of the product.

Capitalization should occur only after the preliminary project stage is complete. The capitalization of costs related to internal-use software should cease once testing is completed.

Furniture for department remodels or replacements will be considered equipment and capitalized by unit if the unit cost is $10,000 or greater.

Individual components of an equipment system(such as hardware necessary to permanently attach equipment to a new maintenance vehicle meeting the capitalization threshold) that are necessary for the equipment to perform its intended function, are capitalized as part of the overall system even if the individual component does not meet the $10,000 capitalization threshold. (i.e.: equipment affixed to patrol vehicles).

F. INFRASTRUCTURE
Definition: Infrastructure assets are long-lived capital assets that normally are stationary in nature and can be preserved for a significantly greater number of years than most capital assets. Common examples of infrastructure “systems” and “subsystems” would include roads, bridges, streets, dams, water and sewer systems, and drainage and lighting systems. Items not an integral part of the infrastructure are considered equipment and treated in a manner described in the equipment classification.

An infrastructure “system” is a network of integrated assets that comprise all assets that provide a particular type of service such as roads. An infrastructure “subsystem” is a network of integrated assets that make up a similar portion or segment of a “system” of assets.

Capitalization: Infrastructure with a value of $10,000 or greater will be capitalized. The cost of infrastructure includes all expenditures in connection with the infrastructure acquisition, such as:
• Purchase price or construction cost
• Grading of land

• Fixtures attached to the structure
• Architect and accounting fees
• Accident or injury costs
• Payment of damages
• Insurance during construction
• Cost of permits and licenses
The cost should be reduced for:
• Sale of salvage from materials charged against the construction • Discounts, allowances, and rebates
Modified Approach vs. Depreciation
The modified approach is an alternative to reporting depreciation for infrastructure assets that meet the following criteria:
• The assets are managed using a qualifying asset management system. • It is documented that the assets are being preserved at or above the condition level established by the City.

The City is not currently using the modified approach.

G. OTHER CAPITAL ASSETS
Definition: Works of Art and Historical Treasures are defined as collections or significant individual items that are owned by the City and are not held for financial gain, but rather for public exhibition, education or research as part of a public service.

Capitalization: The capitalization threshold of works of art and historical treasures is $10,000 for an individual item, whether donated or purchased.

Some collections or items are considered exhaustible (diminished by display, educational or research applications) and should be depreciated over their estimated useful life.

Collections or items which are non-exhaustible are items whose economic benefit or service is used up so slowly that the estimated useful lives are extraordinarily long.

Because of their cultural, aesthetic, or historical value, holders protect and preserve these

assets more than similar assets without such value. Depreciation is not required for collections which are non-exhaustible.

SECTION 4: ASSET CLASSIFICATION/ ACCOUNTING SYSTEM
Assets acquired or constructed by the City shall be classified by major classification and sub-class.

All capital assets shall be accounted for through the City’s finance software or acceptable alternative to be decided upon by the City Controller or designee. This system shall identify each asset with a Capital Asset number, Asset description, original cost, acquisition date, useful life, depreciation, acquiring department, user department, location and other related information. The individual assets in the system shall represent the supporting record for the total asset amounts reported in the City’s financial statements.

The accuracy of this system is not only important for financial reporting, but it also provides information for insurance purposes and records responsibility for maintenance and usage of the asset by department.

SECTION 5: DEPRECIATION METHODOLOGY
Capital assets shall be depreciated over their estimated useful lives. The straight-line depreciation method (historical cost less salvage value, divided by useful life) will be applied to all City assets (except land, works of art and historical treasures, and construction in progress). The Half Year Convention for depreciation shall be an optional accounting method. See Exhibit A for list of Asset Categories and their useful life.

Assets that are fully depreciating or amortized shall remain in the capital assets schedule until disposed of by the City. Upon retirement or other disposition of capital assets, the cost and related accumulated depreciation shall be removed from the respective balances and any gains or losses shall be recognized. See Section 9 for Information of Disposition of Assets.

SECTION 6: TAGGING OF ASSETS
The City Controller’s Department, with assistance from the other City Departments, shall be responsible for tagging Capital Assets. All capital assets that are purchased will be tagged and labeled with the name of the grant used for the purchase, if applicable.

Land, Land Improvements and Buildings will use the legal address for identification in the City records. Vehicles will use their VIN for identification purposes. Equipment (where applicable) will use the serial number for identification.

Assets shall be tagged in order to:

 To provide accountability for the assets, ensuring the asset assigned to a department is controlled and accounted for by a specific department/person  To support inventory control
 To provide auditors with a mechanism to verify the City’s control of capital assets and to provide an accurate account of the City’s capital expenditures The following criteria should be used to determine if an asset should be tagged:
o Yes, if cost of asset is greater than $10,000 and useful life is greater than 3 years
o Yes, if it is physically possible/practical to tag and meets the dollar and life guidelines
o Yes, if it is an asset that is handled frequently, has a high cost, and/or is likely to be stolen
o Yes, if the asset needs to be controlled due to high incidence of theft/misplacement/ borrowing • Generally no, if the asset cost is less than $10,000 and will be used up in less than 3 years.

Donated Assets or any other asset acquired in any way other than through normal purchasing also shall be recorded and tagged. This also holds true for assets purchased with grant monies. The operating department that becomes the beneficiary of any such asset shall notify the City Controller’s Department.

SECTION 7 IMPAIRMENT OF CAPITAL ASSETS
Capital assets shall be considered impaired when events or changes in circumstances indicate that service utility has declined significantly or unexpectedly as defined by Generally Accepted Accounting Principles (GAAP). Such events or changes in circumstances may include flood, fire, earthquake, technological obsolescence, or changes in environmental standards. The City Controller’s Department shall consult with City Departments (as deemed necessary) on an annual basis to determine any impairment of assets.

INDICATORS OF IMPAIRMENT:

1. Evidence of physical damage, such as for a building damaged by fire or flood, when the level of damage is such that restoration efforts are needed to restore service utility

2. Enactment or approval of laws or regulations or other changes in environmental factors, such as new water quality standards that a water treatment plant does not meet (and cannot be modified to meet)

3. Technological development or evidence of obsolescence, such as that related to a major piece of diagnostic or research equipment (for example, a magnetic resonance imaging machine or a scanning electron microscope) that is rarely used because newer equipment provides better service

4. A change in the manner or expected duration of use of a capital asset, such as closure of a school prior to the end of its useful life

5. Construction stoppage, such as stoppage of construction of a building due to lack of funding.

6. The decline in service utility must be significant and unexpected.

EXAMPLES OF IMPAIRMENT

1. Physical Damage
a. I.e.: Office building with mold contamination or structural damage

2. Change in Legal or Environmental Factors
a. I.e.: a Federal agency adopts a regulation that requires all underground storage tanks to be rustproof, double-walled tanks with spill-protection devices, and the regulation will take effect in 5 years. The existing tanks do not meet these standards so after 5 years, the tanks will be unusable, and thus impaired in the current year.

3. Technological development or Evidence of Obsolescence a. I.e.: Obtaining computers with faster processing systems, where the existing computers still function properly, but are used a lot less because users prefer faster computers. Thus the existing slower computers will be impaired in value.

4. Change in Manner of Use
a. I.e.: Water main closures that appear to be permanent.

If the tracking and maintenance of computers is not already assigned or outsourced to a third-party vendor, then the IT Director or designee shall be responsible for tracking the inventory condition, repair, and maintenance of any technology inventory item.

The City Controller or designee shall conduct annual inventory check of assets and make notes of any impairments that would create an obstacle for future usage. This procedure should include checking for existence and condition of the asset.

The Budget Officer or designee must also determine if the cost to repair a capital asset is more or less than the cost of its replacement. If cost to repair is more than the cost to replace, then Budget Officer must provide sufficient explanation as to why replacement of the item is not suitable. This documentation should be approved by City Manager. See Exhibit B for Fixed Asset Impairment Form.

SECTION 8: PHYSICAL INVENTORY
City wide physical inventory will be completed not less than annually by the City Controller or designee. An Inventory list of all equipment assets shall be distributed to each department to verify the assets they have purchased or have received in transfer to their department. The results of the inventory shall be compared to the Capital asset System and any differences shall be reconciled by the appropriate departmental personnel and the City Controller’s Department jointly. Assets not identified, i.e., lost, missing, or stolen, will require a separate written explanation from the Department responsible for the asset.

In addition, City Controller’s Department will periodically audit, or verify, the inventory of assets.

SECTION 9: TRANSFER OF ASSETS TO ANOTHER DEPT. OR LOCATION Assets are often transferred to another department or location as needed for efficient operations. Property shall not be transferred, turned-in or disposed of without prior approval of the owner or user Department Head or designee. The user departments shall be responsible to initiate transfer/disposition processing. The form “Capital Asset Transfer Form” (see Exhibit C) shall be completed for each asset that is removed from one department or location to another. This should be done by the user department and submitted to the owner department and then the City Controller or designee for approval (greater than $10,000).

The transferee Department Head must acknowledge receipt of any capital asset (greater than $10,000) transferred to his/her department. The actual transfer/removal or destruction of property should be witnessed by two City employees from other departments, particularly from City Controller’s office. The locations codes will then be updated in the Capital asset database by City Controller Departmental staff. Intra-city Assets are transferred at book value on date of transfer.

SECTION 10: DISPOSITION OF ASSETS
4-11.10. SALE of CITY PERSONAL PROPERTY.

Whenever the city has any materials, supplies, equipment or other personal property which it no longer needs for municipal purposes, the City Manager shall provide for the sale, donation or destruction of such materials, supplies, equipment or other personal property by such means as he or she shall find most advantageous to the City. In the event such materials, supplies, equipment or other personal property has a sale value of more than $500, the City Manager shall obtain the consent and approval of the City Council before authorizing the sale, donation or disposal thereof.

The City Controller or designee is responsible for designing and implementing the internal controls surrounding the disposition of City surplus Capital Assets. Each owner department shall submit a request to the CM or designee when the department seeks to have any City property under its jurisdiction declared to be surplus. Requests shall then be reviewed by the City Controller or designee prior to disposition. The CM or designee shall notify the Controller or designee, of assets in an annual report, which specifies date of sale, item description, and amount of sale.

At this time, the CM or Designee shall evaluate the surplus property for possible use in another area and will inform other departments of the availability of the property or determine that there is no use for the property.

Once the asset has been deemed as surplus, the City Manager or designee shall determine which of the following methods of disposition to use; careful to avoid any conflict of interest. Costs of disposal will be considered in determining the best method of disposal of surplus property. The owner department head, or designee shall notify the City Controller’s Department if any surplus property was purchased through grant funds, and whether such items can be sold or otherwise disposed of under the provisions of the grant. A written record of the disposal of all surplus property will be maintained by the City Controller’s Department for seven (7) years.

The priority for disposition shall be in the order listed next:

1. Trade In: Property declared as surplus may be offered as a trade-in for credit toward the acquisition of new property. All trade-in offers will be submitted for the review and approval of Department Head or Designee. If surplus property is to be applied to a purchase order, the trade-in value shall be itemized on the P.O. The amount charged against the expenditure account will be the value of the purchase before application of the trade-in credit.

2. Return to Manufacturer: Surplus property may, when possible, be returned to the manufacturer for buy-back or credit toward the purchase of new property. Owner departments shall forward all documentation to the City Controller or designee.

3. Donation: The City may donate usable items with a minimal fair market value (such as outdated computer equipment and furniture) to a registered charitable organization or community organization, for use within the City’s service area. A letter from the organization, acknowledging receipt of the asset(s), is required, and a copy shall be kept by the City Controller or designee as well as by the owner department.

4. Sale: The City may offer surplus property for sale whenever possible and advantageous to the City. All surplus property that is for sale shall be sold “as is” and “where is”, with no warranty, guarantee, or representation of any kind, expressed or implied, as to the condition, utility or usability of the property offered for sale.
 Government Code Section 1090 states “Nor shall state, county, City, judicial City, and city officers or employees be purchasers at any sale or vendors at any purchase made by them in their official capacity.”
 A receipt or other proof of disposal, from the outright sale, the contracted auctioneer, licensed scrap dealer, individual buyer, etc. is required to be obtained by the seller, in this case the Owner Department Head, or designee, and is to be forwarded to the City Controller’s Department. When in the opinion of the City Controller or designee a better return may be received through direct contact with manufacturers, resellers, or users of specialty item(s), then that method of sale will be utilized.

Appropriate methods of sale are as follows:
 Public Auction – Surplus property may be sold at public auction. The City may contract with a professional auctioneer.
 Sealed Bids – Sealed bids may be solicited for the sale of surplus property.

Surplus property disposed of in this manner shall be sold to the highest responsible bidder.
 Selling for Scrap – Surplus property may be sold as scrap if it is deemed that the value of the raw material exceeds the value of the property as a whole.

 Negotiated Sale – Surplus property may be sold outright if it is determined that only one known buyer is available or interested in acquiring the property. Advertisement of the sale must be published in a newspaper for at least two weeks prior to the negotiated sale to ensure no other interested buyers are available.

Land and Buildings will be sold to the highest bidder in a competitive environment after the proposed sale is advertised in a newspaper of general circulation.

Furniture and Fixtures, Machinery and Equipment, and Vehicles will be sold to the highest bidder at public auction. Trade in values will be considered, and encouraged, when in the best interest of the City as determined by the owner Department.

Computer Equipment (including copiers and fax machines) is to be sold to the highest bidder at public auction. Trade in values will be considered, and encouraged, when in the best interest of the City as determined by the IT Department.

Note: Any capitalized or not capitalized asset will be returned to the Information Technology (IT) Department for disposition, Assets will be evaluated by the IT Department for their likeliness of sale and either placed in the auction or destroyed.

The City’s intention is to award and transfer surplus property to the highest bidder. If a mistake is made, an attempt to correct it will also be made; however, the City offers no guarantees and accepts no liabilities for completion of sale(s) other than to return any applicable funds received.

5. Disposal: When the cost of locating a buyer exceeds the estimated sale price of surplus property, the property may be recycled, destroyed, or disposed of as junk.

Upon the disposal of a capital asset, the owner department for the asset should substantiate this action with a Capital asset Disposal Form (See exhibit D) approved by the owner department director. The form should be submitted to the City Controller’s Department within a reasonable amount of time after asset disposal. Additionally, any asset that is destroyed, lost, or stolen requires the completion of the form, along with a statement explaining how the item was destroyed, lost, or stolen.

SECTION 11: TEMPORARY STORAGE OF SURPLUS PROPERTY
The City has limited storage capacity for surplus property. Because of the limited nature

of the space, it may be necessary for departments to retain surplus property until the auction or bid sale date. Arrangements for storage, security, and accountability of the assets while in storage will remain the responsibility of the owner Department disposing of the assets. For all items moved to temporary storage, the owner departments are responsible for completing the Capital asset Disposition Form(s) and forwarding the form(s) to the City Controller’s Department.

SECTION 12: PROCEEDS
The buyer shall pay the City by certified check, money order, or in a manner agreeable to the City Controller, to the assets being handed over. The CM, City Controller, or Designee shall be authorized to sign bills of sale and any other documents evidencing the transfer of title, by and on behalf of the City.

Salvage values received for assets sold will be receipted into the City’s General Fund.

Sale proceeds less direct costs from any sale shall be returned to the General Fund. That is unless the asset was purchased with grant funds. Then the proceeds shall be credited to the fund that purchased the asset.

Exhibit A

CITY OF COMPTON

CITY CONTROLLER DEPARTMENT
IMPAIRMENT OF FIXED (CAPITAL) ASSETS FORM – PART I

COMPLETE AND RETURN TO

FINANCE DEPARTMENT
I. WHAT ARE FIXED (CAPITAL) ASSETS?
Capital Assets are the long-lived assets that require significant investments of resources. They include the assets often referred to as infrastructure assets (roads, bridges, parks, etc.) as well as land, buildings, computer hardware and software, machinery, vehicles, and equipment.

II. WHAT DOES FIXED ASSET IMPAIRMENT MEAN?
Asset impairment is a significant, unexpected decline in the service utility of a fixed (capital) asset, where the events or changes in circumstances that lead to the decline in service utility (or value) are not considered normal and ordinary. The decline in service utility must appear to be permanent.

III. INDICATORS OF IMPAIRMENT (TEST)

7. Evidence of physical damage, such as for a building damaged by fire or flood, when the level of damage is such that restoration efforts are needed to restore service utility

8. Enactment or approval of laws or regulations or other changes in environmental factors, such as new water quality standards that a water treatment plant does not meet (and cannot be modified to meet)

9. Technological development or evidence of obsolescence, such as that related to a major piece of diagnostic or research equipment (for example, a magnetic resonance imaging machine or a scanning electron microscope) that is rarely used because newer equipment provides better service

10. A change in the manner or expected duration of use of a capital asset, such as closure of a school prior to the end of its useful life

11. Construction stoppage, such as stoppage of construction of a building due to lack of funding.

12. The decline in service utility must be significant and unexpected.

IV. EXAMPLES OF IMPAIRMENT

5. Physical Damage
a. I.e.: Office building with mold contamination or structural damage

6. Change in Legal or Environmental Factors
a. I.e.: a Federal agency adopts a regulation that requires all underground storage tanks to be rustproof, double-walled tanks with spill-protection devices, and the regulation will take effect in 5 years. The existing tanks do not meet these standards so after 5 years, the tanks will be unusable, and thus impaired in the current year.

7. Technological development or Evidence of Obsolescence a. I.e.: Obtaining computers with faster processing systems, where the existing computers still function properly, but are used a lot less because users prefer faster computers. Thus the existing slower computers will be impaired in value.

8. Change in Manner of Use
a. I.e.: Street closures that appear to be permanent.

V. ANSWER YES OR NO (circle one)?

1. Are you aware of any fixed assets that fit the definition or indicators of impairment?
Y N

2. Has there been any decision to sell a fixed asset? Y N

3. Has there been a decision not to use a fixed asset any longer? Y N

4. If an asset has been impaired, has the City received (or will it receive) any insurance recovery?
Y N
Name:

Department:

Phone Number:

Date:

Other Appropriate Contact Person:

If you answered “Y” to any of the above questions, please see Part II.

PART II: BELOW ARE IMAGES OF PART II FORMS FOR EACH STAFF MEMBER REQUIRED TO FILL OUT.

USE ELECTRIC FILE TEMPLATE TO FILL THIS PORTION OUT.

Please provide the following information:

Item # Asset Description Asset Category Asset Location
Asset Tag #
and/or ID #
Associated Program #
Percentage
decline in UtilityCause of
Impairment When did theloss take place?
Is there any Evidence
that the loss
is
Temporary?
Is the asset
still being
used?
1 2
3 4
NAME: DEPARTMENT: DATE: PHONE #: OTHER APPROPRIATE CONTACT PERSON:

PART II

COMPLETED BY FIELD AND RETURN TO FINANCE DEPARTMENT

WEST VALLEY WATER DISTRICT

FINANCE DEPARTMENT

IMPAIRMENT OF FIXED (CAPITAL) ASSETS FORM

Please provide the following information:

Item #
Asset
Description
Asset
Category
Asset
Location
Asset Tag
# and/or
ID #
Associated
Program #
Percentage
decline in
Utility
Cause of
Impairment
When did
the loss
take
place?
Estimated
dollar
amount of
loss
What percent
of the asset's
initial cost
does the loss
represent?
1 2
3 4
NAME:

DEPARTMENT:

DATE:

PHONE #: OTHER APPROPRIATE CONTACT PERSON:

COMPLETE BY DEPARTMENT HEAD AND RETURN TO FINANCE DEPARTMENT

WEST VALLEY WATER DISTRICT

FINANCE DEPARTMENT

IMPAIRMENT OF FIXED (CAPITAL) ASSETS FORM

PART II
Please provide the following information:

Item #
Asset DescriptionAsset CategoryAsset
Location
Asset Tag
# and/or
ID #
Associated Program #
Percentage
decline in UtilityCause of
Impairment
When did
the loss
take
place?
Estimated
dollar
amount of
loss
Dollar
amount of
insurance
recovery
When was the
insurance
recovery
obtained?
If insurance
recovery not
yet obtained, when will it be
obtained?
1 2
3 4
NAME: DEPARTMENT: DATE: PHONE #: OTHER APPROPRIATE CONTACT PERSON:

PART II

COMPLETE BY RISK MANAGER AND RETURN TO FINANCE DEPARTMENT

WEST VALLEY WATER DISTRICT

FINANCE DEPARTMENT

IMPAIRMENT OF FIXED (CAPITAL) ASSETS FORM

Exhibit B
THIS SECTION IS INTENDED TO BE BLANK. SEE PAGE 31 FOR EXHIBT C:

DATE
ASSET TYPE: ASSET #.

Land DEPARTMENT
Building
Equipment MAKE
Improvements
Water System MODEL
Infrastructure
Vehicle SERIAL #
DESCRIPTION:

ASSET COST Transferor Location Name:
*If known

BOOK VALUE
*If known
SALVAGE VALUE Transferee Location Name:
*If known

DEPRECIATION
*If known
Effective on the date of transfer all maintenance and repair and fuel charges will be expensed to the receiving dept.

REASON FOR TRANSFER
AUTHORIZED TRANSFERING DEPT.:

DIRECTOR SIGNATURE
AUTHORIZED RECEIVING DEPT.:

DIRECTOR SIGNATURE

ENTERED DATE

INITIALS

SCOTT VALLEY WATER DISTRICT

CAPITAL ASSET TRANSFER FORM

Exhibit C
THIS PAGE IS INTENDED TO BE BLANK. SEE PAGE 33 FOR EXHIBT D:

DATE
ASSET TYPE: ASSET #.

Land DEPARTMENT
Building
Equipment MAKE
Improvements
MODEL
SERIAL #
DESCRIPTION:

PURCHASE DATE METHOD OF DELETION:

SOLD

PURCHASE PRICE SCRAPPED

DISCARDED

DELETION DATE STOLEN/LOST
OTHER
IF OTHER, EXPLAIN:

Assets out of service or in storage cannot be deleted until one of the above events occurs.

REASON FOR DISPOSAL
PRICE RECEIVED FOR ASSET IF SOLD OR SCRAPPED:

DATE OF RECEIPT OF SALES PROCEEDS:

ACCT./BUDGET UNIT CREDITED FOR SALES PROCEEDS:

DIRECTOR SIGNATURE

ENTERED DATE

INITIALS

SCOTT VALLEY WATER DISTRICT

CAPITAL ASSET DISPOSAL FORM

PLEASE ATTACH COPY OF CHECK OF SALES PROCEEDS
1 TABLE OF CONTENTS
SECTION No: TITLE PAGE
No:
1 PURPOSE 2
2 GENERAL POLICY & OBJECTIVES 2
3 INTERNAL CONTROLS SURROUNDING THE ACCOUNTING

PROCESS
3 4 RESPONSIBILITIES 5
5 REVENUES, GAINS, AND CREDITS 15
6 EXPENSES 16
7 ACCOUNTING FOR CASH AND INVESTMENTS 19
8 ACCOUNTING FOR INTEREST RECEIVABLE 20
9 ACCOUNTING FOR GRANTS RECEIVABLE/LIABILITY 21
10 ACCOUNTING FOR GENERAL ACCOUNTS RECEIVABLE 22
11 ACCOUNTING FOR INTERFUND RECEIVABLES AND PAYABLES 23 12 ACCOUNTING FOR INTERFUND TRANSFERS 24
13 ACCOUNTING FOR DUE FROM OTHER GOVERNMENTS 25
14 ACCOUNTING FOR INVENTORY 25
15 ACCOUNTING FOR LOANS AND NOTES RECEIVABLES 26
16 ACCOUNTING FOR PREPAID EXPENSES 27
17 CAPITAL ASSETS 28
18 ACCOUNTING FOR LAND HELD FOR RESALE 30
19 ACCOUNTING FOR DEFERRED INFLOWS AND OUTFLOWS 30
20 ACCOUNTING FOR ACCOUNTS PAYABLES AND ACCRUED

EXPENSES
31 21 ACCOUNTING FOR ACCRUED SALARIES 32
22 ACCOUNTING FOR CUSTOMER DEPOSITS 34
23 ACCOUNTING FOR CONTRACTS PAYABLE 35
24 ACCOUNTING FOR RETENTION PAYABLE 36
25 ACCOUNTING FOR UNEARNED REVENUE 37
26 COMPENSATED ABSENCES 37
27 PENSION 39
28 LONG TERM DEBT 40
29 ACCOUNTING FOR NET OPEB LIABILITY 41
30 ACCOUNTING FOR CONTINGENT LIABILITY 42
31 ACCOUNTING FOR NET ASSETS 43
32 CHART OF ACCOUNTS CODING PLAN 46
33 ACCOUNTABILITY FOR THE INDIRECT COST ALLOCATION PLAN 48 34 REPORTING 48
35 ACCOUNTING DURING A DECLARED DISASTER 49

ATTACHMENT
A
DETAILED PROCEDURES 50
2 SECTION 1: PURPOSE
The purpose of this policy is to ensure that:

1. There is proper separation of duties among City staff surrounding general accounting duties,

2. There is an avoidance of conflict of interest and misappropriation of assets among departments and staff members.

3. Proper procedures will been put in place to ensure that appropriate staff perform their accounting functions effectively and efficiently which include:
 Obtaining and analyzing relevant information on all financial transactions before recording.
 Making appropriate calculations related to transactions analyzed.  Carefully preparing journal entries that reflect the transactions that occurred in relation to the time, dollar value and the accounts involved.
 Obtaining sufficient back up documentation to support journal entries.
 Performing reviews and approval of journal entries before posting to the General Ledger.
 Preparing financial reports that will portray a true and fair view of the City’s financial position and then distribution it to stakeholders.

SECTION 2: GENERAL POLICY & OBJECTIVES
The main objectives of this policy will include but be not limited to the following:

1. To efficiently and effectively perform procedures to obtain relevant financial information affecting the City’s financial position and result of operation.

2. To timely and accurately post accounting transactions to the general Ledger.

3. To prepare relevant financial statements, tables and other schedules needed, that fairly and reasonably represents the City’s financial position and result of operation or any other required financial objectives needed by both internal and 3 external stakeholders of the City; Additionally, to effectively and efficiently disseminate said reports to the appropriate parties on a timely basis.

All City staff are expected to adhere to all other City policies at all times, especially when implementing the provisions of the General Accounting Policy.

SECTION 3: INTERNAL CONTROLS SURROUNDING THE ACCOUNTING

PROCESS
Effective internal control should provide management with reasonable, but not absolute, assurance that assets are safeguarded from unauthorized access, use or disposition; transactions are executed in accordance with management’s authorizations; financial and statistical records and reports are reliable; applicable laws, regulations and policies are adhered to; and resources are efficiently and effectively managed. Control systems shall be continuously evaluated by the City Controller or designee, and weaknesses, when detected by any City staff member, must be reported to the City Controller immediately, for prompt corrective action to be taken by the City Controller, CM, or other appropriate authority, or designee. A satisfactory system of internal control shall be monitored and implemented by all Departments by implementing these policies to achieve, but not be limited to, the following:

A. Control Objectives

1. Operational Objectives

2. Safeguarding of Assets

3. Reporting Objectives

4. Compliance Objectives
B. Control Environment

1. Supportive Attitude

2. Integrity of Competent Personnel

3. Supervision and Accountability

4. Providing discipline and structure
C. Risk Assessment

1. Specifying objectives with clarity

2. Identifying risks to achievement of objectives

3. Fraud awareness and prevention
4 D. Control Activities

1. Authorization, execution, and recording of transactions

2. Segregation of duties
E. Information and Communication

1. Documentation of system
F. Monitoring Activities

1. Performing ongoing evaluations/monitoring

2. Communicating deficiencies in a timely manner for corrective action
Safeguarding of Assets
Access to City assets should be limited to authorized personnel who require these assets in the performance of their assigned duties. Access can be defined as both direct physical access and indirect access through the preparation or processing of documents that authorize the use or disposition of resources.

Supportive Attitude
It is the responsibility of all City staff to participate in and maintain a supportive attitude towards internal controls. In particular, the controls surrounding the General Accounting cycle stated in this policy must also be adhered to. Further, all City staff must follow the City’s code of conduct and address deviations in a timely manner.

Integrity and Competent Personnel
All staff should exhibit high standards of integrity, and shall be responsible for maintaining competence through education, training, or experience, as needed, to accomplish their assigned duties.

Supervision and Accountability
It is the responsibility of all managers to ensure they remain qualified in order to provide continuous supervision in order to assure that approved procedures are followed and are operating as intended. All managers have the responsibility to make lines of personal responsibility and accountability clear to staff on a continuous basis. 5 Segregation of Duties
It is the responsibility of the CM and/or City Controller or designee to divide and segregate key duties and responsibilities among different people to reduce the risk of error or fraud. For example, the warehouse staff should neither reconcile, approve nor post inventory related journal entries. This general accounting policy is designed to mitigate risks such as misappropriation.

Assuming that the departments have complied with all other City policies, the process for maintaining accounts, reviewing, reconciling, approving and posting journal entries related to the same account must follow appropriate internal controls. This involves certifying that all transactions are valid, legal, and properly authorized. Also required is a segregation of duties for each part of the above process and that all journal entries have supporting documents and are accurately and properly recorded.

Departments shall develop a plan of organization that provides segregation of duties appropriate for proper safeguarding of the City’s assets. A satisfactory internal control system depends largely on the elimination of opportunities to perpetrate and then conceal errors or irregularities. This, in turn, depends on the assignment of work in such a fashion that no one individual controls all phases of an activity or transaction.

Signature cards for employees authorized by their department to approve financial documents must be submitted to the City Controller, or designee. They must also be reviewed and updated at least annually by Department heads. It is the responsibility of A/P Staff to circulate the Signature cards to department heads annually and follow up on their completion and return, so that they could be maintained in a central location.

Please see Exhibit A in the City’s A/P Policy for the Signature Authorization Form.

SECTION 4: RESPONSIBILITIES
A. General Accounting staff responsibilities include:

1. Gathering and reviewing all supporting documentation for journal entries for completeness, reasonableness, necessary approvals, and accuracy.  All general ledger entries that do not originate from a subsidiary ledger shall be supported by journal vouchers or 6 other documentation, including an explanation of each such entry.
 Recurring Journal entries such as depreciation and
amortization shall be supported by a schedule associated with the underlying asset or liability account or, in the case of shortterm recurring journal entries or immaterial items, a journal voucher.
 Journal entries that do originate from a subsidiary ledger must be:
o Vouched by the respective Department Head or
designee from where it originates.
o Reviewed for sufficient supporting documentation,
completeness, reasonableness, necessary approvals,
and accuracy before posting, and then posted by
General Accounting staff
o Approved by the Accounting Supervisor

2. Confirming the JE has not already been posted before posting any new JE.

3. Ensure that JE’s are posted timely so that financial data can be relevant and reliable to users

4. Ensure that object codes that are being used in journal entries represent the fairest and best description to properly reflect the financial transaction being recorded

5. Refrain from using one sided journal entries:

6. When an accountant makes a JE, they need to follow through the entire cycle to make sure all accounts are accurately reflected of the substance of a transaction even if other accountants are in charge of recording other accounts.
7 7. In place of “un-posting” a JE, the Accountant shall post a reversal of the JE so the trail will be documented

8. Obtaining information from the bank for the preparation of reports, reconciliation and as supporting documentation for Journal entries, as needed.

9. Performing monthly bank reconciliations for all bank or investment accounts

10.Ensuring that all modules/subledgers accurately interface (or have uploadable data/reports) to the General ledger so that Journal entries that are automatically created:
i. Match a “pre-interface report” from the subledger.
ii. G/L Accounts used are appropriate and match the nature of transactions being interfaced or uploaded
iii. Sufficient supporting documentation exists and is being maintained to support all data included in the journal entry

11.Ensuring that all journal entries are following Generally Accepted Accounting Principles (GAAP).
i. Must make sure to understand the differences between modified accrual and full accrual basis of accounting and reporting; and further, must know which funds or account groups those rules must get applied to

12.Checking the ending balance of accounts where journal entries are being posted to in order to determine if the proper ending balance is reflected after those approved journal entries are posted. If the proper balance is not reflected, then the Accountant shall follow up by investigating and taking action to make the appropriate correction.
i. This includes preparing entries to accrue expenses or revenues when required by GAAP, and then reversing those accruals when applicable at the appropriate time.
8 ii. This includes monitoring of all in-substance suspense accounts and making sure those are cleared out monthly. (Example: Miscellaneous Revenue account)

13.Maintaining financial records, reports, general ledger, and sub ledger accounts accurately and fairly.

14.Reviewing and double checking the data cells that calculate, summarize, or contain a formula before completion of any spreadsheet.

15.Shall keep track of JE numbers, shall ensure that JE numbers are sequential, and shall ensure that acquiring a new JE number is a logical and accessible process.

16.Shall keep track of JE files including proposed JE files, approved, and posted JE files, and shall assist in maintaining an organized filing system for the JE’s at each step in the approval process. The system must allow for accountants to determine the total number of JE’s posted.

17.Preparing basic financial statements, cash flow statements, ad hoc reports, and supporting schedules and/or wording for financial statement footnote disclosures
i. While doing this, accounting staff shall review the balances of various funds and object codes and reconcile any funds or object codes that appear irregular or out of balance.

18.Assistance with compiling reports when not already canned within the Finance software.

19.Performing Balance Sheet (or Statement of Financial Position) and Income Statement (or Results of Operations or Statement of Activities) account reconciliations on a monthly basis. Sub-ledger accounts shall be reconciled to their respective general ledger account (control account) at least monthly.

20.Should review board minutes to obtain financial transactions that might occur but not recorded or not yet communicated to the Accounting Division.
9 21.Assist in preparing and posting budget adjustments to the general ledger.

22.Report on the status of State and Federal grants; work with departments, document compliance with grants contracts, amendments and other documents containing financial compliance requirements.

23. Prepare audit schedules and assist auditors as assigned.

24.Must actively participate in and support the implementation of the internal controls contained in this policy, and immediately follow up if deviation is suspected, in order to avoid the appearance and existence of fraud, misappropriation of City assets, or of conflicts of interest.

25.Have a back-up protocol to ensure continuity and timeliness of operations during vacations and other leaves.

26.Additional responsibilities are stated in the remaining sections within this policy.

B. The Accounting Supervisor’s responsibilities include:

1. Review and approve all Journal Entries.

2. Coordinate. direct, and review the closing process for monthly, quarterly and annual close of the G/L in the finance software.

3. Developing procedures to ensure all City funds are properly accounted. i. This shall include procuring vendors to prepare any estimates or appraisals that are needed for properly implementing emerging account standards

4. Supervising and evaluating staff including guidance in recording unusual financial transactions

5. Assisting in the oversight of new financial systems and in the implementation of new financial procedures in terms of proper planning of internal control activities to ensure that all City funds are accounted for, and that proper financial reporting can occur.
10 6. Monitoring existing financial systems and internal control procedures within City departments to the length that such controls have an effect on the accurate accounting and reporting of financial information and shall work to develop enhancements to such systems and procedures. i. This includes performing the fiscal year end roll over in the finance software and following software vendor directions to do the roll properly.

7. Assisting in the development of City financial policies and procedures and coordinating trainings for City staff that will be affected by such policies, including policies and procedures related to emergencies. i. Shall recommend improvement when necessary;

8. Reviewing financial processes for internal control.

9. Maintain control over the chart of accounts and assignment of new G/L account codes

10.Determining and granting access control to accounting files and folders and ensuring that controls to help mitigate the risk of data loss are properly implemented.

11.Evaluating whether data exists in the financial system to prepare a needed report being requested by an internal or external stakeholder.  If it doesn’t exist, then Accounting Supervisor shall investigate with the Department Head or designee how to best prepare the needed report, or how to capture needed data moving forward so that it can be included in a report when needed.

12.It shall be the responsibility of the Accounting Supervisor or designee to ensure that a backup of the finance software is being done at least weekly (and right before rolling over the finance system to a new fiscal year) by coordinating with the IT Department.

13.Program or compile reports as needed that may not be canned within the finance software.
11 14.Review and approve all bank reconciliations

15.Coordinate the fiscal year end closing process, and audit (including grant audit) process by managing the preparation and submission of audit worksheets and other audit requests to the annual auditors

16.Directing and reviewing staff members’ preparation of periodic accounting reports.

17.Reviewing and approving the financial software setup for the G/L and all subledgers interfacing data to the G/L; as well as confirming the correct software set up during the fiscal year end roll over in the finance system.

18.Reviewing and approving the allowance for uncollectable accounts, as well as other accounts involving the use of estimates and judgements to ensure that estimate and judgements are reasonable, relevant, and have supporting documentation as appropriate.

19.Reviewing financial statements and journal entries to ensure accuracy and compliance with generally accepted accounting practices.

20.Maintaining City’s compliance with emerging accounting standards, regulations, and legislation.

21.Coordinating preparation of any relevant tax returns (including sales or use taxes) and ensuring that City taxes are accurate and paid within the proper timeframe, if applicable.

22.Have a back-up protocol to ensure continuity and timeliness of operations during vacations and other leaves.

23.Must actively participate in and support the implementation of the internal controls contained in this policy, and immediately follow up if deviation is suspected, in order to avoid the appearance and existence of fraud, misappropriation of City assets, or of conflicts of interest.

24.Additional responsibilities are stated in the remaining sections within this policy.
12 C. The City Controller or designee’s responsibilities include:

1. Supervising the programming of modules and subledgers of the finance software, reviews of them periodically to ensure they function properly.

2. Ensuring that Accounting staff have access to financial data and reports contained in modules/subledgers that support the preparation of journal entries, financial data interfaces, or data uploads.

3. Overseeing the City’s fiscal activity, including budgetary control, reporting, and auditing.

4. Direct the preparation of periodic and ad hoc financial reports.

5. Direct and Monitor the year end closing process as well the roll forward process for new fiscal year in the Finance software.

6. Meet with auditors and the Finance Committee regarding any auditor recommendations and findings

7. Follow up on and address audit findings as appropriate, monitor implementation of new internal controls resulting from auditor findings or recommendations

8. Ensure that internal control and proper separation of duties exists in all modules of the finance software to avoid conflicts of interest and misappropriation of assets.

9. Approving the issuing of payments, as this person cannot be anyone who prepares or enters payments into the financial system. This person must be of management or executive level.

10.Setting up department users who are authorized to access the City Accounting Files. Only Accounting staff members in the City Cbntroller’s Department have update capability.

11.Ensure that Accounting staff are properly trained in GAAP, and have the resources to research the proper accounting treatment by obtaining literature, conducting or getting training, etc…
13 12.Have a back-up protocol to ensure continuity and timeliness of operations during vacations and other leaves.

13.Must actively participate in and support the implementation of the internal controls contained in this policy, and immediately follow up if deviation is suspected, in order to avoid the appearance and existence of fraud, misappropriation of City assets, or of conflicts of interest.

14.Direct and manage the preparation, designing, implementation, monitoring, and evaluation of internal control policies and procedures

15.Additional responsibilities are stated in the remaining sections within this policy.

D. Department Head (including the CM, ACM(s), and City Controller, if applicable) or designees, responsibilities shall include:

1. Department Heads must identify “who can approve for what”. Please see the authorization signature card at Exhibit A in the A/P Policy, which shall be updated annually:
i. For approvals for expense account or cost center transfers that are requested to be done by journal entry:
a. The approval covers the funding source, budget units, project codes, and object codes being charged,
vouching of the date and existence of receipt of goods
or services for business purposes, the
appropriateness of the dollar amount, the implied
adherence to the purchasing policy, travel policy,
grants policy, payroll policy, purchase card policies,
and all other City policies, and the implied verification that there is sufficient budget or funding to cover the cost within the object code being proposed for
charging. The approval also implies that the approver
is the appropriate person (or one of the appropriate
persons) to make the approval.
14 b. The accounting staff must verify that there is sufficient budget to cover the transfer in the transferee cost
center before posting the journal entry.
c. For transfers over the budget amount, the transferee’s Department Head must approve the transfer, and the
Accounting staff shall request approval from the City
Controller before posting the journal entry.

2. Have a back-up protocol to ensure continuity and timeliness of operations during vacations and other leaves, including training of staff.

3. To designate one or more persons within their department to be the Liaison with Accounting staff members to achieve set goals.

4. Observing, analyzing, and offering suggestions on current operations.

5. Must actively participate in and support the implementation of the internal controls contained in this policy, and immediately follow up if deviation is suspected, in order to avoid the appearance and existence of fraud, misappropriation of City assets, or of conflicts of interest.

6. Additional responsibilities are stated in the remaining sections within this policy.

E. The City Manager or designee’s responsibilities include

1. Direct and manage the preparation, designing, implementation, monitoring, and evaluation of internal control policies and procedure

2. Have a back-up protocol to ensure continuity and timeliness of operations during vacations and other leaves.

3. Assists auditors in annual audit.

4. Must actively participate in and support the implementation of the internal controls contained in this policy, and immediately follow up if deviation is suspected, in order to avoid the appearance and existence of fraud, misappropriation of City assets, or of conflicts of interest. 15 5. Direct and manage the preparation, designing, implementation, monitoring, and evaluation of internal control policies and procedures

6. Responsible for oversight for preparing the budget and ensure that each department correctly implements it.

7. Reviews and implements auditor’s recommendations.

8. Additional responsibilities are stated in the remaining sections within this policy.

9. Other responsibilities are stated in the remaining sections of this policy.

SECTION 5: REVENUES, GAINS, AND CREDITS
This section explains the types of revenue, the various ways that revenue can be recognized, and stipulates the responsibilities of the Accounting staff to properly account for these revenues in the General Ledger.

Revenue (for governmental funds) can be broken down into: (a) Functional and General revenue, which is revenue that is generated from the main activities of the City (e.g.

Taxes, Licenses and Permits, Charges for Services, Use of Money and Property, etc…) and (b) Other Financing Sources and Transfers which is that revenue generated by the City outside its normal operations. A good example of Other Financing Sources revenue is Bond Proceeds. Additionally, for proprietary funds, Revenue can also be broken down between (a) Operating revenue, which is revenue that is generated from the main activities of those funds (e.g. Sales, Services charges, Rents) and (b) Non-operating revenue which is that revenue generated by the City outside its normal operations. A good example of non-operating revenue is interest income.

There are several bases of accounting for revenue; (a) Going by the Accrual Basis of accounting, revenue is recognized when it realized and earned. (b) Modified Accrual Basis recognizes revenue the period the revenue becomes both measurable and available to finance expenditures of the fiscal period and (c), the Cash basis only recognizes revenue the moment the revenue is received. the City shall use the full Accrual basis of accounting for proprietary funds and the Modified Accrual Basis of Accounting for and, the Accounting Staff have the following responsibilities to ensure that revenue is adequately recorded in the General ledger:
16  Ensure that the all cashiering system and the billing modules are properly set up to interface with (or easily upload to) the General ledger as to account for every transaction that occurs.
 Should request and review all supporting documentations for all revenue (or gains) journal entries to make sure that the correct amount is charged and to the right account.
 Should review Board Minutes and other sources where the City can receive monies to ensure that all revenues received but not recorded are accounted for.  The City Controller or designee shall inspect all new revenue collection sources to ensure that there exists an efficient and effective way to get the revenue data appropriately accounted for in the general ledger.
 Accounting Staff shall also adhere to all related policies and procedures contained in the Billing and Cash receipts policy, as well as the Fixed Assets policy for asset disposal revenue collected if applicable.

SECTION 6: EXPENSES
This section explains the various types of expenses and the responsibilities of the Accounting staff to make sure that expenses are properly accounted in the general ledger.

For Governmental funds, there are five major types of expenditures: General, Functional, Debt Service related, Capital Outlay, and Other Financing Uses. General expenditures relate to monies spent on City Council and City Management activities.

Functional expenditures relate to monies spent on specific functions and activities such as Public Safety, Public Service, and Culture and Recreation. Debt Service expenditures relate to monies spent on the payment of principle and interest of debt.

Capital Outlay expenditures are monies spent on capital projects, equipment, property, land and other assets for improvement or for repair or maintenance. Other Financing Uses are monies spent from governmental funds for purposes other than those stated in the purpose of those funds. Transfers Out is a primary example of Other Financing Uses.
17 For Proprietary funds, there are two major types of expenses: Operating and Nonoperating expenses. Operating expenses are those that the City incurs in the regular operations of its activities. These expenditures include selling, general and administrative expenses (SG&A). Examples include:
 Accounting expenditures
 Depreciation of fixed assets
 Insurance costs
 Legal fees
 Office supplies
 Property taxes
 Rent costs
 Repair costs for non-production facilities
 Utility
 Direct mailing costs
 Communication costs
 Travel costs
 Compensation for production personnel
Non-operating expense are expense incurred by an organization but that do not relate to its main activity. Examples of which are:
 Interest expense
 Derivatives expense
 Lawsuit settlement expense
18  Loss on disposition of assets
 Obsolete inventory charges
 Restructuring expense
Operating and Non-operating expenses can also be recurrent and non-recurrent.

Recurring expenses are those that can occur at regular intervals and thus can be anticipated while, non- recurring expenses do not occur at regular intervals and thus are sometime difficult to plan or anticipate in the budget. The main difference between recurring and non-recurring expenses is the difference between regular, fixed expenses one-time or extraordinary expenses. Majority of expenses under SG&A are recurring. Non-recurring expenses include expenses for things like mergers, large-scale facility upgrades, acquisitions, purchases of real estate, purchases of equipment, severance pay costs from a workforce reduction, or repair costs following a natural disaster or accident.

To properly account for these expenses in the general ledger and to generate relevant and accurate reports, the Accounting Staff shall have the following responsibilities:
 Should ensure that the A/P, payroll, and billing and any other modules are correctly set up to interface with (or upload to) the General Ledger to create journal entries at the appropriate moment.
 To carefully review all payment journal entries to ensure that supporting documentation has been attached and that the expenses are charged to the proper (or at least reasonable) expense account or cost center.  Ensure that recurring expenses like depreciation and amortization are charged against the corresponding assets account and a journal entry is posted to record it on monthly basis.
 Should review Board Minutes and other sources where proper approval shall be given to disburse monies to ensure that all expenses incurred but not recorded through another existing process are accounted for.
19  To ensure that all aging customers whose accounts have become bad or doubtful are properly accounted and recorded on quarterly bases to support the incurred Bad Debt expense in the General ledger.
 Should properly review the reasonableness of all supporting documentations related to the payment of reimbursable expenses and ensure that the payments have been approved by the Department Head or designee.

SECTION 7: ACCOUNTING FOR CASH AND INVESTMENTS
Accounting for cash and investments should be viewed in the following perspectives:
 Cash and Cash Equivalents: Cash and cash equivalents include all highly liquid investments with original maturities of 90 days or less. They are carried at cost, which approximate fair values. They are reported first in the Statement of Net Position under Current Assets
 Investments: They refer to tangible and intangible items obtained for producing additional income or held for speculation in anticipation of a future increase in value. Investment income includes interest earnings, changes in fair value, and any gains or losses realized upon the liquidation or sale of investment. They are stated at fair value. The change in fair value during a fiscal year is reported as Investments for that fiscal year.
 Fair Value Measurements: The fair value of an asset is a broad measure of the asset's worth and is not the same as market value, which refers to the price of an asset in the marketplace. Investments, unless otherwise specified, recorded at fair value in the Statement of Net Position, are categorized based upon the of judgment associated with the inputs used to measure their fair value.

Cash and Investments are reconciled when preparing bank reconciliation statements. The General Accounting staff shall perform monthly bank reconciliations, which shall be reviewed and signed approved by the City Controller or designee, which shall be someone who does not have access to post journal entries or who has access to handle cash or checks.

For Cash JEs, it shall be required to attach to each JV for cash receipts, an email from CT’s 20 office confirming that the cash receipt in question was indeed not recorded, if that is what is suspected when the JE is prepared. If a journal entry is submitted without this type of confirming email, it shall be returned to the initiator and not posted in GL.

If any accountant requests/initiates a bank transfer be done, then as part of the backup of the transfer request, the accountant needs to include a proposed JE to record the bank transfer in the G/L. Once the bank transfer is completed, then the accountant needs to move forward with making sure that proposed JE gets approved and posted.

If a deposit is found in the bank statement and a corresponding entry in the GL for the same deposit is not found, then also it should be mandatory to contact CT office and attach the correspondence to the JE before the JE is approved and posted.

For Investment sales and purchases, gains and losses need to be recorded, and change in fair value needs to be recorded monthly. Investments need to be allocated to each fund depending on their ending cash balances for the month. This includes that investment interest revenue needs to be allocated to grant funds as well.

Please refer to the City’s Bank Reconciliation Policy for the proper procedures for the reconciliation of Cash and Investment accounts to the bank statements.

SECTION 8: ACCOUNTING FOR INTEREST RECEIVABLE
Interest receivable is earned interest but not yet received in cash. In order to properly account for this asset, the Accounting staff should perform the following responsibilities diligently:

1. Identify the various sources of interest receivable which include but not limited to:
 Earned from customers not paying their account balance on time.
 Interest charged on loans and receivables
 From debts and other instruments
 Financial investments held to maturity
 Cash and cash equivalents balances with the bank
21  From Government securities
 From money placement with banks
 From reverse repurchase agreements, if applicable.

2. Request from the various vendors or internal divisions involved, all statements, reports, amortization schedules, and documents that contain the amount of the interest receivable.

3. Ensure that on a monthly basis, interest revenue is adequately collected and posted to the general ledger
SECTION 9: ACCOUNTING FOR GRANTS RECEIVABLE/LIABILITY
Grant revenues are either obtained (1) up-front in advance of grant expenditures taking place, or (2) after the City expends its own money and gets reimbursed via a claim or bill sent to the granting agency.
(1) When grant money is received before expenditures are incurred, it is considered an advance. This means that the City has not yet earned the grant revenue. If priorities change so that the money received will not be spent on the intended program, the City may be obligated to return the advance to the funding agency. Therefore, when an advance is received, it should not be recorded as revenue, but as a liability. As the advance is expended on eligible costs, Accounting division staff shall initiate a journal entry to recognize that portion of the advance as revenue, Accounting staff shall follow up with the Initiating Department at the time of grant closeout. If the department was not able to utilize the grant funds by the end of the grant period, and no extension is approved, the remaining grant funds are liable to be returned to the funding agency.
(2) With reimbursement-based grants, departments need to incur eligible expenditures using the City’s money first before requesting reimbursement from the granting agency.

Therefore, departments should bill the granting agency for eligible grant expenditures according to the billing schedule stipulated by the grant agreement. If the grant agreement and the granting agency did not specify a billing schedule, departments should bill at least quarterly unless prohibited by the granting agency to recover grant costs. Departments 22 should establish their system and document procedures to process and approve billings and draw down grant funds. It shall be the responsibility of the City Controller or designee to monitor Departments’ draw down of grant funds.

Further, Accounting division staff shall obtain the necessary grant billing data from departments and recognize grant revenue at least quarterly. Revenues are earned as eligible expenditures are incurred (with all other eligibility requirements met). Accounting staff shall apply reimbursements received to receivables when received. Because of the use of modified accrual in the governmental funds and full accrual basis accounting in the proprietary funds, the Accounting Division shall recognize revenues as soon as they are earned and available, but for Proprietary funds shall recognize revenues as soon as they are earned regardless of the timing of related cash flows.

The Initiating City Department should bill the granting agency in a timely manner for all eligible grant expenditures. Revenue sources (e.g. federal, state, private, etc.) must be reported and recorded consistently. As soon as the funding agency is billed for reimbursement, the Initiating Department Head or designee shall notify the Accounting Division as the receivable should be accrued and revenue should be recognized for the amount of expenditure incurred for the period (which should be equal to the amount billed).

Please refer to the City’s Grants policy for further information on responsibilities revolving around grants.

SECTION 10: ACCOUNTING FOR GENERAL ACCOUNTS RECEIVABLE
Receivables represent amounts due to the City for goods furnished or services provided before the end of the reporting period and include amounts that are significant and measurable. To have the correct amount of receivable reported the financial statements, the various responsibilities should properly be performed by the responsible Accounting staff or Billing Division staff member:

1. Accounting staff shall reconcile a detailed accounts receivable report (showing aged, outstanding invoices by payer) to the general ledger monthly. The Accountant II will review the reconciliation and ensure that all differences are immediately investigated and resolved.

2. The Billing Supervisor or designee shall also ensure that the Billing system subledger correctly interfaces or can be uploaded to the General Ledger so that customer’s account balances are accurately reflected.
23 3. Accounting staff shall determine all revenues received in the bank statement, but not reflected in the Billing system(s) after the end of the fiscal year, but before the preparation of the financial statements. These revenues shall be booked as receivables as at the end of the fiscal year for the material amounts. These receivables shall be reversed in the respective periods the revenues were received.

4. Department Heads or their designees shall be responsible for monitoring budgetto-actual grant expenditures throughout the grant year and will meet quarterly with the City Controller or designee to discuss grant fiscal results to ensure that before year end, proper amounts of grants receivable are reported in the general ledger.

5. Credits against accounts receivable from transactions other than payments and bad debts usually occur. Examples include returned products and adjustments for billing errors. The General Accounting staff shall post these credits and adjustments to the accounts receivable account via the daily billing module interface, and all credits shall be authorized by the Billing Supervisor.

6. At the end of each fiscal year, the City Controller or appropriate designee will evaluate the collectability of receivables and determine an appropriate allowance for uncollectible amounts. Sections 13 and 17 of the Billing and Cash Receipts policy shall also be followed. The following factors shall be considered when determining the adjustments to the allowance of doubtful accounts:
a. Consider the history of bad debts experience
b. Analyze the outstanding, aged and accounts receivables accounts c. Evaluate specific accounts based on discussions with the department that originated the revenue resulting in the receivable.

7. The City Controller shall authorize a designee to perform year-end adjustments to the reserve for uncollectible accounts. This reserve account is used in the following year to write off those items that are deemed uncollectible from the prior year after further collection efforts have been abandoned, as described earlier.

8. In Proprietary funds, if there are material amounts of receivables still expected to be collected within 12 months that are determinable or estimate-able, then Accounting Staff shall also accrue those into Accounts Receivables as well with sufficient supporting documentation.

9. While accounting for funds that use the modified accrual basis of accounting, an Accountant II shall take steps to determine if revenues are collectible and whether they will be collectible only after 60 days of fiscal year end. If that determination is 24 made, then the Accountant II shall record a Deferred Revenue in the fund that has this type of receivable due and shall review this determination at least Quarterly to determine if any adjustments to this value are needed to be recorded.

SECTION 11: ACCOUNTING FOR INTERFUND RECEIVABLES AND PAYABLES Interfund activity is a resource flow between funds including resources between a primary government and its blended component units. Interfund loans are amounts provided with a requirement of repayment. Interfund loans should be accounted for as interfund receivables in the lender fund(s) and interfund payables in the borrower fund(s).

At least quarterly, Accountant II’s should review financial transactions between funds, even if they are processed through a fund representing a centralized checking account,( or a.k.a. a pooled cash fund), and shall determine which transactions appropriately characterize an interfund loan. At that time, the accountant shall inquire from the initiator of the interfund loan, the plan for repayment of the loan. If the loan has a reasonable chance of getting repaid then the accountant should then make sure to classify that transaction with the appropriate accounts representing interfund receivable in the creditor fund(s) and with an interfund payable in the debtor fund(s).

At least quarterly, Accountant I or II’s should make sure that the repayment schedules for repayments of interfund loans are being followed and shall proposal journal entries to ensure that the repayments take place. If there are any irregularities with the repayment process such as the debtor fund not having sufficient funds to repay the debt, then the accountant should contact the City Controller or designee to identify a different funding source, or to reclassify the nature of the transaction from a loan to a transfer.

Concurrently, the City Controller or designee shall investigate if transfers or the interfund loans that have been made are legally allowable and if it is discovered that they are not legally allowable shall notify the initiator of the interfund loan.

Annually, the Accounting Supervisor shall review all interfund payable and interfund receivable account balances and in total, shall determine whether the total of interfund receivables are equal to the total of interfund payables. If the totals are not equal then the accountant should investigate and correct or explain the discrepancy.

SECTION 12: ACCOUNTING FOR INTERFUND TRANSFERS
25 Interfund transfers are flows of assets without equivalent flows of assets in return and without a requirement for repayment. In governmental funds, transfers should be accounted for as other financing uses in the funds making the transfers and as other financing sources in the funds receiving the transfers. In proprietary funds, transfers should be reported after nonoperating revenues and expenses. Accounts for Transfers In and Transfers Out should be used to identify and control interfund activity.

On a quarterly basis, Accountant II’s shall search for and record any transactions that appear to be Transfers In or Out in substance and shall propose JE’s to record them if appropriate. Further. On a quarterly basis, The Accounting Supervisor shall verify that the total dollar value of Transfers In across all funds is equal to Transfers Out.

Further, if transfers are recorded which have not been budgeted, then Accountant I or II’s shall prepare a list of such items for Council approval quarterly as well. This list shall be provided to the City Controller quarterly for presentation to the Council.

SECTION 13: ACCOUNTING FOR DUE FROM OTHER GOVERNMENTS
Due from other government is an asset account reflecting amounts due to the City from another government (e.g., county or municipality or city). These amounts may represent grants-in-aid, shared revenues, loans, and charges for services rendered by the City for another governmental entity. The Accounting Supervisor or designee shall ensure that the balance in this account is accurately maintained every month and reflected in the general ledger.

SECTION 14: ACCOUNTING FOR INVENTORY
The full accrual basis of accounting values inventory at cost or average cost and inventory is expensed as it is consumed. All Generally Accepted Accounting Principles (GAAP) costing methods are allowed as long as they are being consistently used throughout and between fiscal years. GAAP inventory costing methods include (see Accounting Guidelines section below for definitions of the costing methods):
 First-in-first-out (FIFO)
 Last-in-first-out (LIFO)
 Average/Weighted Average
26 Inventory valuation includes both the purchase price (including discounts applied), shipping, set up fees, environmental fees, regulatory fees or taxes, and sales or use tax.

The following adjustments and JE’s (with supporting documentation attached) must be approved by City Controller or designee before being recorded in the General Ledger, and is subject to external audit:
 Any automatic interfaces (if applicable) or any manual JE recording Inventory additions, deletions, or adjustments to make the G/L match the balance in the Inventory software.

Accounting staff shall note the following when preparing year-end journal entries for the inventory balance in the G/L: that for physical counts conducted at fiscal year-end, receipts and issuances around year end should be reconciled to include items in transit.

Accounting Specialist runs an inventory report from GL and compares amounts to reports generated from the Department(s) in charge of inventory custody. Any differences discovered by Accounting staff between the G/L balance and the Custodian Inventory system balance shall be reported to the City Controller and Director of Public Works and shall be reconciled and resolved immediately. Failure to do so could cause an existing deficiency in internal control to continue or to cause unintended financial costs to the City.

If difference between reports exist, when necessary, a JE is created by Accounting Specialist, reviewed and approved by the Accounting Supervisor, and posted by Accounting Specialist.

SECTION 15: ACCOUNTING FOR LOANS AND NOTES RECEIVABLES
Loans Receivable are an asset reflecting amounts loaned to individuals or organizations external to a government, including notes taken for security for such loans.

When the City disburses a loan, the initial disbursement must be adequately authorized and performed during the A/P process. Please see the A/P process for more information regarding the authorization process. The disbursement of the loan may use an expenditure account or may come directly from the Loans or Notes Receivable asset account. For loan disbursements assigned to an expenditure account, it is the responsibility of Accountant I’s on a quarterly basis to review all disbursements to search for such transactions and to propose JE’s to reclassify those expenses into the Loans or Notes Receivable Asset account. Further, upon recording new loans receivable, the 27 accountant must identify the amount and propose a JE for the Allowance for Uncollectible Accounts that is related to the new loan. Additionally, when searching for Loans and Notes receivable disbursed, Accountant I’s must also determine if a repayment schedule or plan has been included, or is accessible by City Controller Department staff, as part of the supporting documentation for the loan disbursement.

Additionally, Accountant I’s must make sure to have access to a list of all Loans and Notes Receivable customers and individual balances and shall determine if the appropriate receivable balance is reflected in the general ledger.

When a loan repayment is made by a customer and accepted by the cashier, it is the responsibility of the Accountant I to make sure that such payments are properly reflected in the G/L Loans receivable account balance. On a quarterly basis, the accountant shall follow up with the loan receivables administrator to ensure that customer loan payments have been properly applied to their balances and then make sure that the G/L properly reflects the total loan receivable balance.

Additionally, the Accountant I shall also ensure that the related interest revenue, if any, has also been recorded properly in the G/L.

SECTION 16: ACCOUNTING FOR PREPAID EXPENSES
Accountant I’s shall review the check register and wires paid via reviewing the bank statement throughout the fiscal year and search for payments that could be pre-paid expenses by reviewing invoices and communicating with departmental staff.

Once identified, those expenses should be recorded as prepaid expenses and amortized as expenses get incurred.

However, if there are expenses budgeted, that get pre-paid, then accounting staff must make arrangements for the accurate preparation of any budget vs actual reports if they are to use the same trial balance to prepare a full accrual balance sheet as well. An expenditure cannot be charged against an expense account while simultaneously being charged to the Pre-paid expense asset account in full accrual accounting, without implementing another accounting treatment to reduce total expenses.

When reporting the payments made in advance in the financial statement, the Accountant 28 I should be mindful of the following procedures and ensure they are properly observed:
 the City’s threshold amount should be considered before recording an expense as prepaid.
 Prepaid expenses with future benefits that expire within one year from the date of the financial statements shall be classified as current assets. Prepaid expenses that benefit future periods beyond one year from the financial statement date shall be classified as noncurrent assets for business-type funds.  They shall maintain a schedule of all prepaid expenses. The schedule shall indicate the amount and date paid, the period covered by the prepayment, the purpose of the prepayment, and the annual amortization. This schedule shall be reconciled to the general ledger balance as part of the annual closeout process.

SECTION 17: CAPITAL ASSETS
Capital assets are assets with a useful life longer than a year, that is not intended for sale in the regular course of the City’s operation. They include items such as Land, building, construction in progress, and Infrastructure. Except for land, rights-of-way, easements, art, and construction in progress, all tangible capital assets are depreciated and reported in the financial statements. Intangible capital assets such as goodwill, branding, and internally created software, are rather amortized in the financial statements. In order to properly account for capital assets, Accountant II’s should carry out the following duties effectively and efficiently.

1. They should review all invoices, board minutes, reports, and other related documents to look for purchased, damaged, stolen or disposed assets to ensure that their net book values are all accounted for in the General Ledger

2. They should review the City’s threshold policy regarding the capitalization of assets to make sure all the assets within the threshold are accounted for in the General ledger.

3. The Accountant II’s should review all supporting documentation regarding the purchase of assets to ensure that the historical cost of assets is recorded in the General Ledger. Examples of costs that constitute the historical cost of an asset 29 include:
 Legal and title fees, closing costs.
 Appraisal and negotiation fees, surveying fee
 Damage payments
 Land preparation costs, demolition costs
 Architect, engineering, and accounting fees
 Insurance premiums during construction
 Transportation charges
 Interest costs during construction

4. The Accountant II’s should ensure that reasonable judgement is used when determining issues that require estimates and judgements, such the estimated useful life of the asset and the depreciation method used. In line with this, they should make sure that whichever judgement/method is arrived at, it is consistently used throughout the life of the City. Any changes in circumstances that would change the estimate or judgements used, shall be accounted for using the generally accepted accounting standards for Changes in Accounting Estimates.

5. The staff should review all journal entries related to the additions of capital assets to ensure that they are accurately classified under the proper asset category as stipulated by the City’s chart of accounts and fixed asset policy.

6. All Accounting staff shall adhere to the requirements in the City’s Fixed Asset Policy.

7. Further, Accountant II’s shall have the following duties at year end:
 Ensure that all assets but land, right-of-way, art, and construction in progress are accurately depreciated and a new beginning balance for accumulated depreciation established for those assets for the next period. 30  Any assets wrongly classified in the General Ledger are transferred to proper account category via journal entries.
 All assets that have been fully depreciated and are no longer in use by the City shall be removed (accounted as deletions in the Dep. schedule) from the General ledger.
 That all stolen or damaged assets be recognized by the carrying value of the lost or stolen asset. Please refer to the City’s fixed asset policy (section 6) for further information relating to the accounting for fixed asset impairment. Before posting journal entries relating the disposal of fixed assets, the accounting staff should carefully review all supporting documentation and all disposal checklists prepared to ensure that they have been accurately prepared and approved by the department heads before the JE’s are posted.
 Capital assets shall be appropriately classified in the financial statements among funds or governmental/business type activities.
 Capital asset records shall reflect all disposals and deletions that occurred during the period. Adjustment to record gain/loss, remove asset and associated accumulated depreciation shall be made during conversion.  Abandoned construction-in-progress (CIP) shall be written-off and removed from the records.
 New capital assets shall be properly capitalized into the correct accounts and accurately classified on the financial statements at the time of acquisition.
 Capital assets acquired for use in proprietary fund operations shall be accounted for within the appropriate fund. Capital assets, other than those accounted in the Proprietary Funds shall be reported in the General Fixed Assets account.

SECTION 18: ACCOUNTING FOR LAND HELD FOR RESALE
All lands purchased for development and/or resale shall be recorded at the lower of cost or net realizable value. Cost includes the cost of acquisition, development and interest 31 incurred on the financing of that land during its development. Net realizable value is the value of an asset that can be realized upon the sale of the asset, less a reasonable estimate of the costs associated with the eventual sale or disposal of the asset.

An Accountant I shall be assigned to maintain a schedule of Land Held for Resale. This staff person shall be responsible for the regular updating of the schedule and other related accounting records. Year-end schedules for Land Held for Resale shall be reconciled with the general ledger account. Information for the schedule shall be obtained from the City’s disbursement records, receipt records, communication with departmental staff, review of City agreement, Council or Board meeting minutes, staff reports, and resolutions.

SECTION 19: ACCOUNTING FOR DEFERRED INFLOWS AND OUTFLOWS A deferred outflow and inflow of resources is a consumption of net assets by the City that is applicable to a future reporting period (GASB Concepts Statement 4, ¶32). Deferred outflows of resources should be combined with assets while deferred inflows of resources should be combined with liabilities to determine which elements meet the criteria for major fund determination.

Additionally, Deferred outflows and Inflows are always inclusive of changes in net pension.

The collective deferred inflows /outflows of resources related to pensions arising from certain changes in the collective net pension liability should be recorded. These changes include differences between expected and actual experience, changes in assumptions and differences between expected and actual earning on plan investments.

The Accounting Supervisor or designee shall ensure that all deferred inflow and out outflow schedules are prepared, approved and the amounts reported in the financial statements.

Other sources of Deferred Outflows and Inflows are unearned revenues, grant revenues, sales of future revenues, debt issuance costs, lending activities, loan origination fees and costs, Each of these types of possible costs or transactions should be investigated by the Accountant II’s quarterly for the proper recognition into the Deferred Outflows and Inflows accounts.

SECTION 20: ACCOUNTING FOR ACCOUNTS PAYABLES AND ACCRUED 32 EXPENSES
1) Accounts Payables
In order for the City to maintain efficient business practices and good cost control, a well-managed accounts payable function should be put in place. To ensure accurateness and reliability in the account payable balances the City should ensure that all the staff properly implement the A/P policy. That notwithstanding, the following responsibilities must also be performed with due care by general accounting staff or designee:
 It is the primary responsibility for the Accounting Supervisor to ensure that the A/P module correctly interfaces to the ledger for accurate balances to the reflected from all payable accounts.
 The Accountant I’s shall ensure that all contractor invoices that are received, approved, and supported with proper documentation at the end of the fiscal year, but before the preparation of financial statements shall be recorded as accounts payable as of the end of the immediately preceding year, if the invoice pertains to goods or services delivered by the fiscal yearend. Not only invoices from the check register should be reviewed, but also all payments including wires and ACH debits of material amount that were paid post year-end but incurred pre year-end shall be booked as payables.  On a monthly basis, the total amount due to contractors per the accounts payable subsidiary ledger shall be reconciled to the total per the accounts payable general ledger account (control account). All differences will be investigated, and adjustments made, as necessary. The reconciliation and the result of the investigation shall be reviewed by the Accounting Supervisor or designee.
 The accounting staff shall also, monthly, check all vendor billing statements that have been received but the invoices not yet processed and report to the Department Head or designee from where the transaction originates. 2) Accrued liabilities:

Some of the expenses are commonly accrued by the City at the end of an accounting period but paid after. Such include:
33  Interest on notes payable
 Rent
 Paid leave
 Salaries and wages
 Payroll taxes
It is the responsibility of the Accountant I’s to ensure that an accrual is booked for these expenses at the end of each accounting period and reversed in the period they are paid.
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SECTION 21: ACCOUNTING FOR ACCRUED SALARIES
Accrued salaries are salaries which have been incurred but not yet recorded in the accounting ledgers at the end of the accounting period. This issue arises as the salaries are often paid to a date which does not necessarily coincide with the accounting period end date. When using the accrual or modified accrual method of accounting, it is necessary that we ensure that financial statements are prepared to comply with the matching concept of accounting. Therefore, if there is a gap between the date of the last payroll deposit and the date on which you prepare the financial statements, it is necessary to make an adjusting journal entry to record the incurred salary expense for the days not covered by payroll. To accurately reflect this scenario in the financial statement, it is the responsibility of the Accountant I’s at year end to:
 Obtain staff payroll record from the payroll division and perform the necessary calculations to determine the total amount of salaries to be accrued for each accounting period.
 Prepare a journal entry to accrue the amount
 Reverse the entry in the period the salaried is paid to the employee.  Public Employee Retirement System
34 o The Payroll Division shall submit to the Accountant I, the "Contribution Detail Report" of employees classified under Miscellaneous Classic, Fire Classic, Fire Pepra and Miscellaneous Pepra.
o The "Payroll Report Summary" shall also be submitted and shall be the basis in computing accrued PERS (Public Employee Retirement System). o PERS that pertains to the current fiscal year which were paid in the subsequent fiscal year shall be recorded as accrued PERS.

SECTION 22: ACCOUNTING FOR CUSTOMER DEPOSITS
Customers deposits relates to payments made by customers in cash or check or any other methods. This represents the City’s most liquid assets; thus, the strongest internal controls and measures should be implemented in this area to ensure that are accurately reported. The Accountant II’s have the following responsibilities to ensure that this is accurately performed:
 To ensure that the customer’s account in the subledger is correctly set to interface with the general ledger each time the customer makes payments for the total deposit amount.
 Also, the Accountant II’s should ensure monthly that the billing system or subledgers tracks all the payments made by the customer for that month so that at year-end, the total balances of all customer deposits are interfaced in (or uploaded to) the general ledger accurately. If the total deposits received from the customers do not match the total reflected in the billing system, the Accountant II’s should find out the variance and prepare an adjustment for, and also ensure that such variances do not occur in the future.

SECTION 23: ACCOUNTING FOR CONTRACTS PAYABLE
In order for the City to carry out certain projects without having funds to finance for, they get in to contract agreements with other cities, governments, or private parties to finance these projects for them, which will be paid later. the City could also obtain rights, bonds, and loans from other cities to accomplish their projects. Whichever is obtained, a financial obligation is created by the City of which a portion of it must be settled annually, until the 35 gross amount is fully paid. At the same time, the amount still owing by the City has to be reported in the financial statements as a payable: To have a more realistic amount of what is owed in the general ledger and financial statements, the Accountant II’s have to perform the following duties with diligence.
 The Accountant II’s at year end, shall review all contracts, supporting payment schedules, audit worksheets and their subledgers to determine how much is to be accrued each year. If the staff does not trust the accuracy of the contract schedules and worksheets in their possession, they shall contact the City Controller or designee for appropriate schedules showing the amount payable as of year-end and also for any possible new contracts.
 They shall also review all the bank statements and the check register, for checks paid out, ACH debits and wires out, to determine how much has been paid during the year relating to contracts and accrue the balance.
 Also, the accounting staff shall review the check register and bank statements post year end but pre financial statement preparation date for any payments that were made for contracts during the preceding fiscal year and record as reductions to the amounts payable, accruing the balance. In some cases, the accounting staff shall review the payment history of the contracts to be able to make a reasonable judgement of the amount to accrue at year end for all contracts.

SECTION 24: ACCOUNTING FOR RETENTION PAYABLE
Retention Payable is a liability account reflecting amounts due on construction contracts not paid pending final inspection of the project or the lapse of a specific period, or both.

The unpaid amount is usually a stated percentage of the contract price. In order to ensure that the contract payable account is accurate, the following must be performed each time an invoice is presented for payment from the vendor:
 The invoice or request for warrant with a copy of the vendor contract attached must indicate the dollar amount or percentage of retention. The Accounting Specialist must enter the dollar amount for the proper expenditure account as well as the dollar amount that will be assigned to the retention payable liability account. This is to be done during the data entry process that is done for the check process. The Accounting Specialist must verify that the appropriate supervisor has signed off on the request for warrant and must verify that the 36 approval covered the use of the retention payable liability account for the specified dollar amount or percentage. Further, when the Accounting Specialist enters the payment information, he/she shall also enter the contract number into the description field of the finance software that is related to the amount of the retention payable. This must be done each time an invoice is paid that requires retention payable. This is critical since there may be vendors that have multiple contracts with the City, and the retention payable for each contract must be readily identifiable.
 When the initiating department requests for any part of the retention to be paid, that department must document and approve that the circumstances to release the retention were met. Further, during this time the Accounting Specialist must run a report of entries that were made to the Retention Payable Liability account for that contract number, and must verify with the initiating department that the correct amount was retained and also that the correct amount is being released.  A report of retention payable liability balance-make-up and roll forward schedule (including beginning balance, additions, deletions and ending balance) should be reviewed monthly by an Accountant II. This report should be tested monthly for accuracy for each applicable contract.

SECTION 25: ACCOUNTING FOR UNEARNED REVENUE
Similar to advances, unearned revenue is money received for work that has not yet been performed. The matching principles guides us towards matching revenues to the period they are earned. In addition, GASB Statement No. 33, Accounting and Financial Reporting for Nonexchange Transactions gives guidance on revenue recognition. It is critical the City ensures the proper application of its revenue to have accurate financial statements. To achieve these the Accountant I’s shall perform the following responsibilities with professional due care:
 Ensure on a monthly basis that the billing system keeps track of all payments made by customers, including over payments. The billing system should also show which general ledger account the payments are to be posted to. At the end of the month, the balance in the billing system shall be checked against with the balance in the general ledger to ensure that they both correctly performed the interfaces. If there are any discrepancies, the accounting staff has as an obligation to find out the variance and determine how best to make an adjustment. Adjustments made 37 directly to the general ledger can lead to duplicate recognition of transactions if those adjustments are later also made to the billing module, or any other subledger.
 The Accountant I’s and Accountant II’s, during the preparation of bank reconciliations statements, shall keep a record of all revenues that have not yet been earned for each month and book as unearned revenues. At year end, they shall determine the portion of the unearned revenue that has been earned by cross-checking with the Billing Division or the department where the revenue originates from to determine the exact amount of revenue unearned and then book as a liability.

Besides the accounting staff performing the above duties, the Accounting Supervisor shall on a monthly basis, communicate with all Department Heads, or designees, to obtain information regarding unearned revenue for the projects carried out by the various departments and present to the accounting staff to do the appropriate journal entries to record them.

SECTION 26: COMPESATED ABSENCES
This section provides guidance for the measurement of accrued compensated absences liabilities by the City. Compensated absences are absences for which employees can be paid, such as vacation, and sick leave. The following is presented alongside the responsibilities of the Accountant I’s who shall ensure that the accounting procedures they are performing are accurately capturing the proper data that shall be posted in the General ledger.

Vacation leave: Vacation is defined as leave with pay granted to employees for the purpose of rest, relaxation, and attendance to personal matters. Vacation accrual for regular full-time employees is usually based on an eight (8) hour day. In most cases, an employee may begin use of accrued vacation leave upon successful completion of their probationary employment period (usually six-months). However, accrual of the leave begins during the first pay period of employment. The payout is usually included in the employee’s final paycheck or in the last paycheck for which the employee is eligible to accrue vacation leave. The accrual, usage and payment of vacation leave varies between employments and it is the responsibility of the employee to read and follow the stipulations on their various bargaining units.

Sick Leave: Time off from work, paid or unpaid, on account of an employee's temporary 38 inability to perform duties because of sickness or disability. The amount of sick leave an employee can accrue per year depends on the individual's paid sick leave plan. At a minimum, California law requires 24 hours (or 3 days) of paid sick leave per year for fulltime employees. Employees earn a minimum of 1 hour of paid leave for every 30 hours worked.

It is the responsibility of the Accountant I’s to ensure that these liabilities are properly accounted for and reported in the financial statements: The individual responsibilities are addressed below:

1. Every departmental head shall establish and communicate to its employees, specific procedures on the applicability of each leave type as reflected in their respective bargaining units.

2. It is the responsibility of the Accountant I to ensure/follow up that Payroll staff provides a leave report at least on monthly bases to the Accounting Division.

3. The Accountant I’s should ensure that the financial software properly tracks all hours earned by the employees from the payroll module, to ensure proper accountability.

4. The Accountant I’s should read all bargaining unit agreements to make sure that the leave hours earned and taken that are tracked by the system are accurate and reflective of what is stipulated per their respective bargaining unit agreements.

5. If the finance software cannot track employees’ hours, the Payroll Supervisor should ensure that manual timecards are prepared for all employees to fill out and should be approved by the respective manager before summitting to payroll division.

6. In a situation where only, manual entry is needed to input the hours into the finance software after approval, it is the responsibility of payroll staff to do the entry under the supervision of the Payroll Supervisor.

7. Accountant I’s should review all supporting documentation for all journal entries relating to various leaves obtained or time paid off to employees.

8. Accountant I’s should use a reasonable judgement when deciding which method to use in calculating the current and non-current portion of the Compensated 39 Absences and ensure that this method is documented and consistent over the years.

9. The liability includes amounts to be paid in paid time off or some other means, such as cash payment at termination. The compensated absences liability shall be calculated based on the pay or salary rates in effect at the balance sheet date or as agreed upon based on contract, regulation or policy. A reasonable estimate may also be used.

SECTION 27: PENSION
A pension is a type of retirement plan that provides monthly income in retirement based by the length of the employee's working years and the annual income they earned on the job leading up to retirement. In accordance with Governmental Accounting Standards Board (GASB) No. 68, Accounting and Financial Reporting for Pensions, the City recognizes pension costs when employment services are provided, rather than when the pensions are funded. To measure net pension liability, deferred inflow /outflow of resources related to pension and pension expense, information about the fiduciary of the City’s pension plans and additions to/deductions from the plan’s fiduciary net position shall be determined as reported by the plans. For this reason, benefit payments are recognized when due and payable in accordance with benefit terms.

To properly maintain the pension contribution of employees in the General ledger the Accountant II’s shall perform the following duties.

1. Reviewing that Payroll staff has paid the accurate rate as stipulated on the actuarial variation for each category of employee, if applicable.

2. Reviewing actuarial reports for obtaining GASB 68 data to prepare appropriate schedules, JE’s, and footnote disclosures of the basic financial statements.

3. Ensure that all payroll clearing accounts have the appropriate balances at fiscal year-end.

4. Determine if any pre-payments or lump sum payments have been made and determine their effect on the Net Pension Liability and/or Prepaid Expense accounts.
40 SECTION 28: LONG TERM DEBT
Any amount of outstanding debt that the City holds that has a maturity of 12 months or longer is called a Long-term debt (LTD). It is classified as a non-current liability in the City’s Statement of Net Position. To Properly report this in the financial statements, the following duties should be performed by the accounting staff.

1. Accountant I’s Should review all contracts and board minutes to ensure that all sources of financing are accounted for and reported in the financial statement.

2. Accountant II’s Should review all long-term debt finance contracts, Bond Official Statements, Trustee bank statements, Financial Advisor reports, and other related documentation and accurately prepare or review amortization schedules that will show:
a. The amount of the sources and uses of the financing, b. The amount of Principal and the amount of Interest payable, c. The amount of premium, discount, and economic gain on refunding, if applicable.

3. Accountant II’s perform the step above additionally in order to prepare any complex JEs for the recognition of new debt or refunding activities done during the fiscal year.

4. Accountant I’s Should review all wires-out, and trustee bank statements, to record all principle and interest payments and adjust the bond and interest payable balance accordingly.

5. Accountant II’s Shall review all CIP project costs to prepare supporting documentation for any drawdowns performed from bond construction proceeds if any.

6. Accountant II Shall determine amount of bond reserve or idle funds held with the trustee to factor into the calculation of Invested in Capital Assets Net of Related Debit line item in the Equity section of the Statement of Position.

7. Accountant I Should review all trustee bank statements for bond proceeds that 41 may be accruing interest revenue and recognize the revenue accordingly.

8. Accountant II Should review the relevant amortization schedules of bond payables to prepare any long-term debt schedules needed for basic financial statement footnote disclosures

9. Accountant II Shall record interest and amortization expense in accordance with GAAP

10.Accountant II Shall record Bond, Loan and/or Note payables in accordance with GAAP

11.Accountant II Bond Refunding transactions shall be accounted for appropriate in accordance with GAAP.

12.Accountant I Shall perform debt covenant testing quarterly SECTION 29: ACCOUNTING FOR NET OPEB LIABILITY
Other post-employment benefits (OPEB) are the benefits that an employee will begin to receive at the start of retirement. This does not include pension benefits paid to the retired employee. These OPEBs include benefits such as postemployment healthcare, life insurance, dental, benefits described in the City’s personnel handbook. In accordance to GASB 75, it requires that the measurement date for this liability date should not exceed one year to the prior financial reporting date. To measure net OPEB liability, deferred inflow /outflow of resources related to OPEB and OPEB expense, information about the fiduciary net pension of the City’s OPEB plans and additions to/deductions from the plan’s fiduciary net position shall be determined as reported by the plans. For this reason, OPEB plan recognizes benefit payments when due and payable in accordance with benefit terms.

Accounting staff shall perform the following function to accurately report the amount of this liability in the financial statements:
 It is the responsibility of the City Controller or designee to hire an actuary to prepare an actuarial report that will show the liability disclosures that are required to be disclosed in the financial statements and the 42 appropriate balances with which to recognize in the general ledger. The assumptions underlying the determination of the total OPEB liability and related measurements will be made in conformity with Actuarial Standards of Practice, issued by the Actuarial Standards Board and disclosed in the Notes to the Basic Financial Statements.  The Accountant II’s shall perform all related journal entries and disclosures as stipulated in GASB 75 and use the information in the actuarial report appropriately.

SECTION 30: ACCOUNTING FOR CONTINGENT LIABILITY
Some events may eventually give rise to a liability, but the timing and amount is not presently sure. Such uncertain or potential obligations are known as contingent liabilities. Generally accepted accounting principles include guidelines on the recognition, measurement and reporting of these liabilities. Each liability is treated differently based on the likelihood of the contingency occurring. GAAP requires that accountants report probable contingent liabilities as unspecified expenses on the income statement in the balance sheet, as accruals. Accountants must disclose all contingencies that could significantly alter the City’s estimated earnings. According to GAAP:

I. When the outcome is probable and subject to reasonable estimation, record in the financial statements
II. When the outcome is possible, include as a footnote disclosure III. When the outcome is remote, no required disclosure is necessary.

To properly account for these liabilities in the general ledger the Accountant II’s shall:
 Monthly, follow up with the legal counsel regarding all claims and lawsuits and determine the probability of getting a settlement. If there is a settlement and the exact amount cannot be ascertained, but a range is determinable then the midpoint of the range shall be used to determine the amount to prepare for the journal entry. If there is no range, the staff shall use the best possible reasonable judgment or estimate an amount to prepare the journal entry under the supervision of the Accounting Supervisor.
43  Review any actuarial reports prepared in order to determine appropriate liability to be recorded.
 At year end, schedule a meeting with the City Attorney or designee to search for contingent liability losses that are probable, that were incurred but not reported to the actuary, and make accrual entry as appropriate.  Prepare a journal entry to reverse the original entry when the settlement is paid.
 The City shall estimate and accrue incurred but not reported (IBNR) claim liabilities by projecting ultimate claims. Ultimate claims are the sum of three components: cumulative paid claims, case outstanding, and IBNR.  Estimated IBNR is derived by getting the difference between projected ultimate claims and reported claims as of the valuation date. The total unpaid claim estimate is calculated as the sum of the estimated IBNR difference between projected ultimate claims and cumulative paid claims as of the valuation date.

SECTION 31 : ACCOUNTING FOR NET ASSETS
In order to comply with the Governmental Accounting Standard Board’s (GASB) Statement No. 54, Fund Balance Reporting and Government Fund Type Definitions, the fund balance section of the balance sheets of the governmental funds has been modified from how it used to be. The change has been made in order for the City’s new fund balance components to focus on “the extent to which the government is bound to honor constraints on the specific purposes for which amounts in the fund can be spent” (GASB Statement No. 54, paragraph 54). Previously, the fund balance section focused on whether these resources were available for appropriation. It also distinguished the unreserved fund balance from the reserved fund balance. In order to show compliance with GASB Statement No. 54, however, the components of the new fund balance include the following line items: a) the nonspendable fund balance, b) restricted fund balance, c) committed fund balance, d) assigned fund balance and e) unassigned fund balance. The implementation of these new components is intended to decrease confusion and help serve the needs of the financial statement users.

For further explanation of each fund balance component, please see the following. 44 a) Nonspendable fund balance (inherently nonspendable) include the :
 Portion of net resources that cannot be spent because of their form, and  Portion of net resources that cannot be spent because they must be maintained intact
b) Restricted fund balance (externally enforceable limitations on use) include amounts subject to:
 Limitations imposed by creditors, grantors, contributors, or laws and regulations of other government
 Limitations imposed by law through constitutional provision or enabling legislation c) Committed fund balance (self imposed limitation set in place prior to the end of the period):
 Limitation imposed at the highest level of decision making that requires formal action at the same level to remove. For the City, the City Council is the highest level of decision making.
 Resources accumulated pursuant to stabilization arrangements would fit in this category only if the arrangement is specific regarding the circumstances when spending would be permitted, and those circumstances would need to be of a non-routine nature
d) Assigned fund balance (limitation resulting from intended use) consists of amounts where the: Intended use is established by the body designated for that purpose (City Council),
 Intended use is established by official designated for that purpose. For the City, the City Manager is the designated official
e) Unassigned fund balance (residual net resources) is the:
 Total fund balance in the general fund in excess of nonspendable, restricted, committed, and assigned fund balance
45  Excess of nonspendable, restricted, and committed fund balance over total fund balance
In Proprietary funds, Net Assets are defined as the difference between the government’s assets and its liabilities. This term is used in lieu of fund balance or equity. The net assets are divided into three components: Invested in capital assets, net of related debt; Restricted net assets (distinguishing between major categories of restrictions); and Unrestricted net assets.

1. Invested in Capital Assets, Net of Related Debt – This component is the capital asset balances, including restricted capital assets less both accumulated depreciation and outstanding balances of any capital-related debt.

Note: If capital assets do not have any related debt, the title should be ‘Invested in Capital Assets.” If a significant portion of related debt has not yet been expended on capital assets, that portion of the unspent debt should be included within the same net asset’s component as the unspent debt proceeds (e.g. restricted for capital projects).

2. Restricted Net Assets – Net assets should be reported as restricted when constraints placed on net assets are either:
a. Externally imposed by creditors (such as through debt covenants), grantors, contributors, or laws or regulations of other governments; or b. Imposed by law through constitutional provisions or enabling legislation c. No category of restricted net assets can be negative. When the liabilities that related to the restricted assets exceed those assets, no balance should be reported, and the negative amount should be reported as a reduction of unrestricted net assets. Board designations are not considered “restricted assets” for the purpose of the Statement of Net Assets.

3. Unrestricted Net Assets – This is the default category. If any remaining assets do not fit into the other categories, they are reported in this section.

To properly account for these assets in the general ledger it is imperative to determine how the finance software calculates Net Asset line items and whether it 46 accepts journal entries on equity accounts. If or when journal entries are posted to equity accounts, a trial balance or a system balance sheet shall be run to determine the effect on the fund balance and on the calculation of total equity.

SECTION 32: CHART OF ACCOUNTS CODING PLAN
The City’s controls over the Chart of Accounts are as follows:
 The Controller's Office shall furnish each department with the Chart of Accounts and shall conduct training on the proper usage of account codes to ensure consistency throughout the City.
 The Controller's Office shall maintain and create a single, citywide Chart of Accounts with complete description of each account code.  The Deputy City Controller shall see to it that the Chart of Accounts shall provide for an accurate and consistent recording of accounting transactions in accordance with Generally Accepted Accounting Principles.  The Controller staff shall offer trainings on the Chart of Accounts in order to clear out issues, if any.
 Each department shall be responsible for assuring the proper application of accounts and related codes in accordance with the definitions, guidelines, and procedures established by the Controller's Office.
 Account codes used in the invoice and all supporting documentations shall be reviewed by the department heads to ensure these account codes are used in accordance with the guidelines set forth in the Chart of Accounts prior to the submission to the Controller's Office.
47 The City’s chart of accounts shall be designed as such:
 Assets and asset grouping codes start with 1
 Liabilities and liability grouping codes start with 2  Equity account codes start with 2
 Revenue and revenue grouping codes start with 3
 Expenses and expense grouping codes start with 4,5,6,7,8, or 9 The account coding string is as follows:

For balance sheet accounts: F F FF – G G G – A A A A
 Fund (F) codes are 4 digits
 Account/Object (G) grouping codes are 3 digits, if applicable  Object codes (A) are 4 digits
For revenues and expense accounts: F F F F – D D 0 - 0 0 0 – A A A A  Department codes (D) have 2 digits
SECTION 33: ACCOUNTABILITY FOR THE INDIRECT COST ALLOCATION PLAN Accounting staff shall assist in the preparation of the indirect cost allocation plan if needed. Accounting staff shall ensure that any account or cost center balances used in the cost allocation plan preparation are accurate, complete, and reasonable. Accounting staff shall also participate in the review of calculations within the plan for reasonableness, fairness, and accuracy. This includes calculating and reviewing the reasonableness of and posting internal service charges, as well as internal utility charges
48 SECTION 34: REPORTING
City reporting requirements include the following and shall be performed by the City Controller or designee timely:

A. MONTHLY
a. Income Statement
b. Balance Sheet
c. Budget vs Actual Variance report
B. QUARTERLY
a. Bond Reporting,
b. Grant Financial reporting according to grantor requirements, including HUD reporting
C. ANNUALLY
a. CAFR and related schedules
b. State Controller’s Report
c. Cash flow statement
d. Grant Financial Reporting according to grantor requirements, including HUD requirement for annual audited financial statements SECTION 35: ACCOUNTING DURING A DECLARED DISASTER
During a declared disaster, City Accounting staff shall first confirm that a disaster has been declared by the Board, and that the Emergency Operations Center (EOC) has 49 been opened.

City staff assigned to the EOC Finance Section shall report to the Finance Section Chief, who shall announce when the Emergency Accounting system is opened. During this time, EOC Finance Section staff shall:
 Determine estimated amounts for emergency projects
 Assign project codes,
 Assign codes to projects to group them for FEMA reporting requirements  Inform City staff opening requisitions or purchase orders or who need to charge expenses, to charge them to the City’s on-going revenue and expense object codes.

ATTACHMENT A: DETAILED PROCEDURES
JOURNAL ENTRY PROCEDURES:

1. Journal Entry Review and Approval
a. Background:

A journal entry records financial transactions in the general ledger. It is the policy of the 50 Controller's Office to have all journal entries properly prepared, reviewed, approved by the appropriate staff in the Controller's Office, recorded in accordance with generally accepted accounting principles, and stored in a uniform and consistent manner for easy accessibility.

I. Procedures
1 All journal entries should include the name and signature of the preparer. 2 All journal entries should be approved and dated.
3 Journal entry descriptions should clearly explain the purpose of the journal entry. 4 All transactions should be recorded in terms of debits and credits to specific accounts. Total debits must equal the total credits.
5 Account titles and codes used should correspond to the "Chart of Accounts" that the City has identified and made available for recording transactions in its general ledger. 6 All journal entries should have an auto-generated sequential numbering to fully account for each entry.
7 The "Manual JV #" and the "Computer JV #" should be removed from the Journal Voucher form and the "JV #" should be used instead.
8 The "Month & Year" in the Journal Voucher form should be changed to "Posting Date". 9 Journal entries should be adequately supported by documentation. 10 If a journal entry is corrected, the accountant shall go back to the original entry and make a note that it has been corrected. The new journal entry number, the posting date and the reason/s for its correction should be included in the note.
11 All journal entries should be logged.
12 All journal entries with supporting documentations should be kept on file in the Controller's Office for 7 years or until the annual audit has been completed whichever comes later. After the retention period these can be transferred to the storage of the City.
13 Posted journal entries and supporting documentations should be scanned and stored in the Controller's "shared file", by the person who posted the JE. 14 The City Controller or designee should assign a staff to check and monitor the proper implementation of scanning and storage in the Controller's "shared file". The assigned staff member should compare the journal entries in the "shared file" with those entered in the "Log in" file folders or 51 from the list of posted journal entries in the City's accounting software.

II. Review and Approval Process
1 All journal entries should be reviewed and approved by the Deputy City Controller or desginee to ensure that each entry is accurate, appropriate, reasonable, adequately documented and in conformity with generally accepted accounting principles and procedures. 2 After the journal entries have been reviewed and approved, the entries will be posted to the general ledger by the Accountant who proposed the entry using the City's accounting software.

III. Cash Transfers

1. Policy
The City Controller or designee shall ensure that transfers between cash accounts are recorded timely and accurate.

2. Procedures:
 The designee of the City Controller shall prepare the Request for Transfer.  The Request for Transfer shall be submitted to the City Controller or designee for approval.
 The approved Request for Transfer shall be submitted to the City Treasurer's Office for confirmation.
 Journal entry shall be prepared as soon as the confirmation for transfer has been received from the Treasurer's Office.
 If there are multiple bank accounts and two or more General Ledger staff are involved in those accounts, the staff in charge of the account where the wire has been transferred from, shall be responsible for creating the entire journal entry. The staff member shall confer and inform the other staff that have coverage of those G/L accounts before the journal entry is made.
 Journal entries with supporting documentation shall be submitted to the Deputy City Controller or designee for approval and posting.
 After the journal entry has been approved and posted, the staff who created the journal entry shall be responsible to furnish a copy of the journal voucher to the other staff involved in covering related G/L accounts.
52  Journal vouchers shall be scanned and saved in the shared drive. Hard copies to be filed in the Controller's File folder.
 The Office Aid or other designated person by the City Controller, shall make sure that hard copy files are placed back into their necessary filing system by office staff by routinely checking with office staff if they have any outstanding files at their desk or elsewhere that they are aware of.

TABLE OF CONTENTS

SECTION
No:

TITLE PAGE
No:
1 PURPOSE 2
2 GENERAL POLICY 2
3 APPLICABILITY OF POLICY 3
4 DEFINITIONS 3
5 RESPONSIBILITY 3
6 PERFORMING THE BANK RECONCILIATION 6
7 BANK RECONCILIATION PROCEDURES 9
8 BANKING 12
9 THIRD PARTY DEPOSITS OR WITHDRAWALS 12

SECTION 1: PURPOSE
This policy is intended to provide the procedures for bank reconciliations. Account balance reconciliations, such as the bank reconciliation, provide reasonable assurance that account balances on the City’s Statement of Net Position are accurate, complete and valid. The account balance reconciliations are key internal controls that provide reasonable assurance around the following financial statement assertions:
 Accuracy: Transactions were accurately recorded at appropriate amounts.  Completeness: All assets, liabilities and net asset balances that should have been recorded were correctly recorded on the Statement of Net Position.  Existence: All assets, liabilities and net asset balances that were recorded on the Statement of Financial Position existed at the end of the financial period.

SECTION 2: GENERAL POLICY
It is the policy of the City that all incoming or outgoing funds to the City’s bank accounts be recorded in the general ledger on a timely basis. Frequent bank reconciliation is essential to prevent fraud and to ensure the City’s funds are handled with fiscal and fiduciary responsibility. Bank account reconciliation is a key component of good controls over cash and should be done in a timely manner. Reconciling the bank statement balance with the book balance (general ledger) is necessary to ensure that:
 all receipts and disbursements are recorded (an essential process in ensuring complete and accurate monthly financial statements);
 checks are clearing the bank in a reasonable time;
 reconciling items are appropriate and are being recorded; and  the reconciled cash balance agrees to the general ledger cash balance. This policy applies to all bank accounts held by the City.

Bank Reconciliations should be done manually but can also be (even partly) done by the financial software if it is reliable, however, a manual process should also be utilized along with the software reconciliation. Any unmatched book/bank lines or other reconciling items should be corrected, or appropriately handled, within 120 days of the reconciled month. Any reconciling items outstanding greater than 120 days may be recorded in other operating revenue or other operating expense, if reasonable and appropriate.

The original bank account reconciliation summary will be filed in a central file to be accessible to the City Controller or designee. All supporting documentation will be maintained electronically on the City Controller Department shared directory. Both hard

copy and electronic files will be maintained in accordance with City record retention guidelines and will be made available to the City Controller or designee upon request.

SECTION 3: APPLICABILITY OF POLICY
This policy applies to all City Controller Department staff members responsible for reconciling account balances in the City’s general ledger (or relevant subledgers) and in preparation of the Financial Statements.

SECTION 4: DEFINITIONS
Bank Statement: A paper or electronic record of all financial activity for the prior month provided by each bank.

General Ledger: The main accounting book of record for an entity which includes accounts for assets, liabilities, revenue, expense, gains and losses. The City’s general ledger is contained in an accounting software in which “actual” transactions are posted to the official book of record.

Reconciling Item: Any activity on either the bank statement or the general ledger but not recorded in the other. Examples include:
 Bank not Book – this is an unmatched bank line that represents a deposit/withdrawal that appears on bank statement but not on general ledger
 Book not Bank – this is an unmatched book line that represents deposit/withdrawal on general ledger but not on bank statement Bank account reconciliation: Process of confirming that the bank statement is valid and accurate, that transactions are reflected properly in the general ledger account and that the ending balance on the general ledger account is accurate. Any differences should be identified, reconciling items investigated, and balances adjusted appropriately.

Bank account reconciliation summary: A one-page summary for each bank account that shows the bank balance, book balance, timing differences and all reconciling items.

SECTION 5: RESPONSIBILITY
All staff should exhibit high standards of integrity, and shall be responsible for maintaining competence through education, training, or experience, as needed, to accomplish their assigned duties. It is the responsibility of all managers to ensure they remain qualified in order to provide continuous supervision in order to assure that

approved procedures are followed and are operating as intended. All managers have the responsibility to make lines of personal responsibility and accountability clear to staff on a continuous basis.

The City Controller Department is responsible for:
 Ensuring that the bank statement(s) are obtained and saved, in a central City Controller Department location, on a monthly basis, for all bank accounts  Ensuring that all gateway and merchant processor batch transmission and settlement reports are obtained and saved, in a central City Controller Department location, on a monthly basis, for all merchant account IDs.  Ensuring that all general ledger account balance reconciliations contain adequate supporting documentation.
 Ensuring that the check, wire, and ACH Debit registers (as well as reports of voids or stop payments done) are maintained for each check, wire, and ACH Debit “run” in a central City Controller Department location.
 Ensuring that NSF (not-sufficient-funds or bounced) checks, ACH Debit or credit rejection bank notices are routed to the appropriate division for entry into the appropriate subledger to remove credit from the customer’s account appropriately.  Ensuring that reconciling items are resolved in a timely manner.  Have a back-up protocol to ensure continuity and timeliness of operations during vacations and other leaves.
 Must actively participate in and support the implementation of the internal controls contained in this policy, and immediately follow up if deviation is suspected, in order to avoid the appearance and existence of fraud, misappropriation of City assets, or of conflicts of interest.
 Additional responsibilities are stated in the remaining sections within this policy.

The City Controller or designee will be responsible for:
 Developing and maintaining documented procedures for reconciling each bank account held by the City.
 Ensuring that the same individual should not prepare and also review a reconciliation.
 Ensuring that the same individual should not record transactional activity and also

approve reconciliation of the account balance.
 Reviewing and approving the bank reconciliation
 Signing the approved bank reconciliations. Their signatures on the bank account reconciliation summary will confirm that current procedures were followed, and that the reconciliation accurately presents the status of the account at the bank as well as on the general ledger.
 Determining if staff assigned to the bank reconciliation process, as well as those who are proposing or posting journal entries (including within the cashiering process) are adequately trained and qualified to perform such tasks, and allocate resources to ensure such qualification exists, if needed.  Make available the software, documentation, and tools needed for staff to perform the bank reconciliation
 Have a back-up protocol to ensure continuity and timeliness of operations during vacations and other leaves.
 Must actively participate in and support the implementation of the internal controls contained in this policy, and immediately follow up if deviation is suspected, in order to avoid the appearance and existence of fraud, misappropriation of City assets, or of conflicts of interest.
 Additional responsibilities are stated in the remaining sections within this policy.

Reconciling Staff Accountant(s) is responsible for:
 Preparing bank reconciliations
 Working together with the cashiering locations, departmental representatives, or others to identify and resolve reconciling items on a timely basis.  Providing a copy of the signed bank account reconciliation summary to the City Controller or designee, indicating the reconciliation status.  Being open and honest and not fabricating items to complete or to balance the bank reconciliation. The assigned preparer(s) are responsible to seek further training, assistance, or teaching if they do not feel fully adequate, equipped or comfortable performing the bank reconciliation.
 Reviewing cash G/L balances by fund to search for negative cash balances that have been recorded and to determine the most appropriate corrective action to address those situations.

 Have a back-up protocol to ensure continuity and timeliness of operations during vacations and other leaves.
 Must actively participate in and support the implementation of the internal controls contained in this policy, and immediately follow up if deviation is suspected, in order to avoid the appearance and existence of fraud, misappropriation of City assets, or of conflicts of interest.
 Additional responsibilities are stated in the remaining sections within this policy.

SECTION 5: PERFORMING THE BANK RECONCILIATION
A. Reconciliation Preparation
Each bank account shall be reconciled on a monthly basis and within 20 business days of the end of the month. If this is not feasible then reconciliation must be done as soon as possible.

B. Having Appropriate Knowledge and Understanding
a. When starting a bank reconciliation, the preparer should keep the following in mind:
 Keep in mind which bank account(s) they are reconciling. If they are reconciling two accounts at once, keep them straight.
 Keep in mind which general ledger cash (or equivalent) account (or fund(s)) is representing the bank account being reconciled.  Be aware of the period beginning and end dates, as this is particularly important for identifying deposits in transit and outstanding checks. b. When doing the bank reconciliations, the preparer must carefully keep in mind and apply to each transaction they review what are the instances that cause a net:
 Increase or decrease to cash in the bank.
 Increase or decrease to cash in the books.
 Zero effect to cash in the bank
 Zero effect to cash in the books.

For Example, when preparing the bank reconciliation, the preparer must follow the cycle of when a check gets issued, sent to a vendor, and then cashed by that vendor.

Meaning: The preparer must have a clear understanding of when there is a change in the bank balance, and when is there a change in the book balance. c. When preparing the bank reconciliation, the preparer should have sufficient knowledge of the object codes and cost or revenue center codes that exist within the City’s accounting system, and in which instances new codes need to be created
d. The preparer of the bank reconciliation shall have sufficient knowledge of cashiering systems, billing systems, and subledgers feeding the general ledger.
e. The preparer of the bank reconciliation should recognize the structure of the bank account(s) and recognize when it makes a difference during reconciliation.
f. The preparer should be able to read and understand a bank statement. Bank statements aren’t always straightforward and require detailed review to understand the types of transactions that have taken place during the period. g. The preparer should have a clear understanding of the following:
i. The last fully reconciled bank reconciliation and its related reconciling items.
ii. All the possible ways that debits and credits are getting posted to the bank statement, and who in the organization is responsible for booking these transactions. Knowing this can help narrow down likely sources of mistakes or deficiencies in the bank reconciliation process. iii. All the possible ways that cash (or equivalent) transactions are recognized or recorded in the general ledger.
iv. Which cashiering systems, billing systems, or sub-ledgers are already in place, which are feeding into the general ledger (including online), and how are they feeding into it.
v. The need to recognize other sub-ledgers that could be feeding the general ledger including payroll modules, accounts payable (check processing) modules, or corporate credit card-issuer platforms.

C. Adequate Control over the General Ledger
a. The City Controller or designee and the staff member(s) performing the bank

reconciliation must be aware of all of the different methods of how and by which employees, journal entries (of any kind) get proposed and posted to the general ledger. This is needed in order to trace the source(s) of errors or omissions in posting transactions, especially those that may be recurring. i. The act of proposing a journal entry includes initiating an interface (or upload) between a subledger of the general ledger to the general ledger. (subledgers include Cashiering modules, Billing modules, Accounts Payable modules, Payroll modules, Permitting modules if applicable, etc…) The interface or upload that contains a summary of subledger transactions in a journal entry format must be:

1. Adequately reviewed and approved by the initiator of the interface (as shall be done with any other journal entry that is proposed to be posted to the general ledger) to vouch that all transactions entered adequately represent actual financial transactions that took place, for fairness of account codes charged, that all underlying transactions have supporting documentation and that the sub-ledger batch report can be completely traced to the bank statement.

2. Adequately reviewed and approved by the staff person(s) posting the interface to the general ledger. This person must match the pre-interface report of transactions with the summary journal entry report to be posted and vouch for fairness of account codes charged, that all underlying transactions have supporting documentation and that the sub-ledger batch report can be completely traced to the bank statement.
b. There must be adequate communication between all staff members that propose and/or post journal entries to ensure transactions don’t get posted more than once or omitted.
c. All Journal Entries that get proposed must have supporting documentation that vouches for the following:
i. Existence of the transaction
ii. Date(s) transaction occurred
iii. Appropriateness of accounts and/or budget units charged iv. The dollar amount of the transaction
v. Appropriate approvals were obtained for the
disbursement/withdrawal/expensing and/or receipt of funds or other

assets
vi. Any cost allocation performed was fair, reasonable, and appropriate across all object codes, department codes, and funds.
vii. The transaction has not already been accounted for and posted to the G/L by another method
viii. Appropriate characterization of the transaction that occurred ix. The City_’s budget, the purchasing policy, and all City or contractual restrictions and regulations are being adhered to. This is inclusive of grant requirements.
d. Journal entries shall be reviewed on a monthly basis and the reviewer must be able to trace the journal entry back to appropriate supporting documentation.

D. Record Keeping
The bank reconciliation preparer should:
 Correctly track which transactions are coming out of (or going into) which cash or investment account, and retain sufficient bank records,  Fully understand which general ledger cash account is meant to represent which bank account. Multiple account balances may be reconciled together in one reconciliation, as needed.

SECTION 6: BANK RECONCILIATION PROCEDURES:

A. General Procedures
 A review shall be made of all of the entries that affect the related cash (or investment) account in the general ledger.
i. All of the entries that have been recorded should traced to the appropriate bank statement. If not all entries can be traced, then the preparer of those entries shall consider reversing or adjusting the entries. If help is needed, the preparer shall contact the City Controller or designee. More research will likely be needed in such a circumstance.
ii. While this review is being done, the bank date shall be marked next to each G/L cash transaction.
 A review shall be made of all bank statement credits and debits to determine if they were recorded. If they weren’t, then the preparer shall note them as

a reconciling item and propose that a journal entry be done to record them if necessary.
i. If any of those reconciling items will reverse in the next period, the bank reconciliation preparer may decide not to propose or post a journal entry for them. Instead, the bank reconciliation preparer may keep track of it for that month’s bank reconciliation and then carry that reconciling item forward as a until a future month when the transaction occurs that reverses the effect of that item. ii. While these are being reviewed, the book date shall be marked next to each bank statement item.
 An organized list of reconciling items shall be kept, including the following fields:
i. The month of the bank reconciliation that is being worked on. ii. A detailed description of the reconciling items and why each item is needed.
iii. The dollar amount of the reconciling item, along with a notation about whether it will be a credit or debit to the cash account. iv. Whether a journal entry will be needed, or whether the reconciling item will reverse itself at a future date.
v. If a journal entry is needed, then a note shall be made which designates the general ledger account (code) it would need to be charged to, other than the cash account.
vi. The journal entry number used to make the entry to the general ledger shall also be noted, if applicable.

B. Deposits in Transit
 A deposit in transit happens when the entity’s books have recorded a deposit on a particular date, but the bank is showing the deposit date to be in a different period that isn’t already covered by the book balance.  The deposit in transit is a reconciling item to the bank reconciliation.  In order to track deposits in transit, amongst other steps, the preparer should:
i. Recognize if merchant processors group transactions or batches differently than the cashiering system.

ii. Know which revenue centers and/or object codes correspond to different merchant ID numbers
 Accounting staff shall keep sufficient supporting documentation like deposit slip copies or credit card batch transmission reports. A batch settlement report should also be kept. These should be kept in a central location so that Accounting staff would have access to them.

C. Outstanding Checks
 A check is “outstanding” when it is recorded in the general ledger but has not yet been paid by the bank.
 As part of the bank reconciliation, the preparer shall perform a “mini” reconciliation for the outstanding check balance. The formula for getting the ending balance of outstanding checks is: beginning balance of outstanding checks + checks issued (including voided checks) - checks paid (take into consideration checks that were rejected or not paid for other reasons).

D. Procedures to Follow When Preparer Is Unable to Complete the Bank Reconciliation:

If the preparer gets stuck, they shall consider reviewing the following:
 The sign (positive or negative) of existing reconciling items.  Reconciling items from a prior period that have reversed themselves in the current period. These may possible qualify to be removed from the list of reconciling items.
 Typos from data entry.
 A missed deposit in transit.
 An additional outstanding or voided check that was not already accounted for.
 A transaction that should be accounted for within a different general ledger cash or investment account.
 Calculation of change in the fair market value.
 Transactions that were accidentally posted twice.
 Re-performance of all the bank reconciliation steps more carefully  Perform research on the beginning balance which could be masking unidentified reconciling items, where the prior bank reconciliation may not have been properly done. The prior period may need to be reconciled again.

SECTION 7: BANKING
The preparer of the bank reconciliation shall report any observed insufficiencies in banking services or bank account structure to the City Treasurer and to the City Controller or designee. Such insufficiencies include:
a. The number and relationship of bank accounts, and their adequacy to support efficient and effective bank reconciliations that can be performed timely as determined within this policy.
b. The efficiency and effectiveness of bank services such as Positive Pay, ACH debit block, Account Reconcilement, Check 21/Remote Deposit, Lockbox Services, Payroll Debit Cards, E-payables, Merchant Processing Services, Armored Car services, Change-making services, Vault Deposits, Bank notices, On-line Banking platform, Wire and ACH approvals, banking supplies, etc… if applicable a. Insufficiencies within these services may also cause unwanted delays in the bank reconciliation process if not reported and addressed timely c. If the City uses any of the banking services as mentioned in b above, City staff shall follow the necessary protocol as recommended by the bank to ensure these services are performed efficiently and effectively.

SECTION 8: THIRD PARTY DEPOSITS OR WITHDRAWALS
There may be instances when the City uses a contractor to perform services which include the contractor making deposits to or withdrawals from the City’s bank account as part of their operations. In any of these instances, it is the responsibility of the City Controller or designee to review supporting documentation provided by any such vendor for reasonableness and completeness. It is also the responsibility of this person to note and resolve any errors with the third-party contractor in a timely fashion. Further, the City Controller may appoint an auditor to audit the contractor as the City Controller sees fit.