The
Honorable Mayor and City Council
City o
f Costa Mesa, California
We
have audited the financial statements of the governmental activities, each major fund, and the aggre
gate remaining fund information of the City of Costa Mesa (“City”) as of and for the year ended Ju
ne 30, 2024, and have issued our report thereon dated January 16, 2025. Professional standards re
quire that we advise you of the following matters relating to our audit.
Our
Responsibility in Relation to the Financial Statement Audit As
communicated in our engagement letter dated July 3, 2024, our responsibility, as described by pro
fessional standards, is to form and express opinions about whether the financial statements that have
been prepared by management with your oversight are presented fairly, in all material respects, in
accordance with accounting principles generally accepted in the United States of America. Our aud
it of the financial statements does not relieve you or management of your respective respo
nsibilities.
O
ur responsibility, as prescribed by professional standards, is to plan and perform our audit to obtain re
asonable, rather than absolute, assurance about whether the financial statements are free of mater
ial misstatement. An audit of financial statements includes consideration of internal control over
financial reporting as a basis for designing audit procedures that are appropriate in the cir
cumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s in
ternal control over financial reporting. Accordingly, as part of our audit, we considered the internal co
ntrol of the City solely for the purpose of determining our audit procedures and not to provide any assur
ance concerning such internal control.
We
are also responsible for communicating significant matters related to the audit that are, in our pro
fessional judgment, relevant to your responsibilities in overseeing the financial reporting process.
H
owever, we are not required to design procedures for the purpose of identifying other matters to co
mmunicate to you.
Planned Sc
ope and Timing of the Audit
We
conducted our audit consistent with the planned scope and timing we previously communicated to the
Mayor.
Comp
liance with All Ethics Requirements Regarding Independence The
engagement team, others in our firm, as appropriate, and our firm have complied with all re
levant ethical requirements regarding independence.
We identified self-review threats to independence as a result of non-attest services provided. Those non-attest services included recording journal entries detected during the audit process and preparing the financial statements. To mitigate the risk, management has reviewed and accepted responsibility for journal entries and has compared the draft financial statements and footnotes to the underlying accounting records to verify accuracy and has reviewed a disclosure checklist to ensure footnotes are complete and accurate.
Attachment 3
Significant Risks Identified
We have
identified the following significant risks:
Risk of errors in construction in progress. We reviewed projects included within the balance of construction of progress to determine if they were properly classified at fiscal
year
-
end
.
Compliance with
Federal Grant Requirements. We reviewed the City’s schedule of federal expenses and selected major programs to test for compliance with federal grant requirements.
Qualitative Aspects of the Entity’s Significant Accounting Practices
Significant Accounting Policies
Management has the responsibility to select and use appropriate accounting policies. A summary of the significant accounting policies adopted by the City is included in Note 1 to the financial statements.
No new accounting policies were adopted, and the application of existing policies was not changed during the year ended
June 30, 2024.
No matters have come to our attention that would
require us, under professional standards, to inform you about (1) the methods used to account for significant unusual transactions and (2) the effect of significant accounting policies in controversial or em
erging areas for which there is a lack of authoritative guidance or consensus.
Significant Accounting Estimates
Accounting estimates are an integral part of the financial statements prepared by management and are based on management’s current judgments. Those judgments are normally based on knowledge and experience about past and current events and assumptions about
future events. Certain
accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ markedly from management’s current judgments.
The most sensitive accounting estimates affecting the financial statements include:
Management’s estimate of amounts recorded as claims and liabilities is based on management’s reliance on a third
-
party claims administrator. We evaluated the key factors and assumptions used to develop the amounts by the third -
party claims administrator a
nd
determined that it is reasonable in relation to the financial statements taken as a whole.
Management’s estimate of transactions related to net pension and OPEB liabilities based on actuarial information.
We evaluated the key factors and assumptions used to develop the amounts by the actuary and determined that it is reasonable in relation to the financial statements taken as a whole.
We evaluated the key factors and assumptions used to develop the estimates and determined that it is reasonable in relation to the basic financial statements taken as a whole and in relation to the applicable opinion units.
Financial Statement Disclosures
Certain financial statement disclosures involve significant judgment and are particularly sensitive because of their significance to financial statement users.
The most sensitive disclosures affecting
the financial statements were:
The disclosure of investment fair value in note 2 to the financial statements
The disclosure of pensions in note 11 to the financial statements
The disclosure of OPEB in note 14 to the financial statements.
T
he financial statement disclosures are neutral, consistent, and clear.
Difficulties Encountered during the Audit
W
e experienced difficulties in the performance of the audit due
to
the delayed
receipt of audit
schedules
and subsequent journal entries
,
which
added to the tim
ing
of the audit.
Significant Unusual
Transactions
For purposes of this communication, professional standards require us to communicate to you significant unusual transactions identified during our audit.
There were no unusual transactions
noted as a result of
our audit procedures.
Uncorrected and Corrected Misstatements
For purposes of this communication, professional standards also require us to accumulate all known and likely misstatements identified during the audit, other than those that we believe are trivial, and communicate them to the appropriate level of manageme nt. Further, professional standards
require us to also communicate the effect of uncorrected misstatements related to prior periods on the relevant classes of transactions, account balances or disclosures, and the financial statements as a whole and each a
pplicable opinion unit. Uncorrected misstatements or matters underlying those uncorrected misstatements could potentially cause future -
period financial statements to be
materially misstated, even though the uncorrected misstatements are immaterial to the f inancial
statements currently under audit.
Management has determined that the
effect
of the following
uncorrected adjustment
are
immaterial, both individually and in the aggregate, to the financial statements as a whole:
o
To adjust
ambulance
receiv
ables
, revenues and related bad debt
o
To account for accrued interest earned in the balance reported for the OC Sheriff ’
s
Investment Pool
o
To record a prior
period
adjustment for projects in service in prior fiscal
years and the
related accumulated depreciation
o
An
adjust
ment
to increase the claims payable liability
.
In addition, professional standards require us to communicate to you all material, corrected misstatements that were brought to the attention of management as a result of our audit procedures.
There
was a material adjustment to beginning fund balances that we identified as a result of
our audit procedures, brought to the attention of, and corrected by management.
Disagreements with Management
For purposes of this letter, professional standards define a disagreement with management as a matter, whether or not resolved to our satisfaction, concerning a financial accounting, reporting, or auditing matter, which could be significant to the City’s f inancial statements or the auditor’s report.
No such disagreements arose during the course of the audit.
Representations Requested from
Management
We have requested certain written representations from management in a letter dated January
16 ,
202
5 .
Management’s Consultations with Other Accountants
In some cases, management may decide to consult with other accountants about auditing and
accounting matters. Management informed us that, and to our knowledge, there were no consultations with other accountants regarding auditing and accounting matters.
Other Significant Matters, Findings, or Issues
In the normal course of
our professional association with the City, we generally discuss a variety of matters, including the application of accounting principles and auditing standards,
significant events
or transactions that occurred during the year, operating and regulatory conditions affecting the entity, and operational plans and strategies that may affect the risks of material misstatement. None of the matters discussed resulted in
a
condition to our retention as the City’s auditors.
Other Information Included in the Annual Comprehensive Financial Report
Pursuant to professional standards, our responsibility as auditors for other information, whether financial or nonfinancial, included in the City’s annual report, does not extend beyond the information identified in the
audit report, and we are not required to perform any procedures to corroborate such other information. However, in accordance with such standards, we have read the information and considered whether such information, or the manner of its presentation, was materially inconsistent
with its presentation in the financial statements.
Our responsibility also includes communicating to you any information which we believe is a material misstatement of fact. Nothing came to our attention that caused us to believe that such information, or its manner of presentation, is materially inconsist
ent with the information, or manner of its
presentation, appearing in the financial statements.
This report is intended solely for the information and use of the City Council and management of the City and is not intended to be and should not be used by anyone other than these specified parties.
Irvine, California
January
16 , 2025