Cotati City Council
Agenda Staff Report
Item type: CONSENT AGENDA (ACTION)
To: City Council
Subject: RECEIVE AND FILE THE FISCAL YEAR 2022/23 AUDITED
ANNUAL COMPREHENSIVE FINANCIAL REPORT (ACFR)
FOR THE CITY OF COTATI
Date: February 13, 2024
Written by: Angela Courter, Director of Administrative Services Recommendation
It is recommended that the City Council receive and file the Fiscal Year 2022/23 audited Annual Comprehensive Financial Report (ACFR) and related audit letters.
Background
The Annual Comprehensive Financial Report (ACFR) is an audited summary report of the financial transactions of the City for the Fiscal Year 2022/23, ending June 30, 2023. The report is presented to the City Council and is designed to provide summary financial information for citizens, other government agencies, municipal lenders, and other interested parties. The format of this report complies with the Generally Accepted Accounting Principles (GAAP) and reporting requirements of the national Governmental Accounting Standards Board (GASB).
Badawi & Associates, licensed Certified Public Accountants who specialize in governmental audits, has audited the City’s financial statements. The goal of the independent audit was to provide reasonable assurance that the financial statements of the City for the fiscal year ended June 30, 2023, are free of material misstatement. The independent audit involved examining, on a test basis, evidence supporting amounts and disclosures in the financial statements; assessing the accounting principles used and significant estimates made by management; and evaluating the overall financial statement presentation.
The ACFR is intended to improve access and transparency by providing ten years of historical financial information, as well as expert narrative analysis of the finances of the City. This provides a multi-year look at the City finances and helps the reader understand the information presented in the Basic Financial Statements section of the ACFR.
For fiscal years 2017/18, 2018/19, 2019/20, 2020/21, and 2021/22 the City received the Government Finance Officers Association (GFOA) ACFR award called the Certificate of Achievement for Excellence in Financial Reporting and will continue to apply for this award, which has historically been awarded to less than 1% of cities our size.
Analysis/Discussion
The City’s financial statements provide information about the finances of the City in its entirety, as well as information about individual funds. The ACFR is organized into the four sections summarized below. The full financial statements have been provided as attached and are also available online through a digital formal at hhttp://tinyurl.com/CotatiACFR2022-23.
Introductory Section
• Letter of Transmittal - which is designed to complement Management’s Discussion and Analysis (the MD&A) and is prepared by management and used to communicate information on areas that may have an impact on the City’s finances now and in the future. This includes economic, budget and management factors. Both should be read together to understand the City’s financial position.
Financial Section (the main body of the ACFR for current year information) • Independent Auditors’ Report – the City’s report card on the content of the ACFR. • Management’s Discussion and Analysis (MD&A) – provides an analytical overview of the City’s financial status and results for the year.
• Basic Financial Statements – reports finances at a point in time (assets - liabilities) and throughout the year (revenues - expenditures), and cash flows. o Government-Wide Statements – overview of financial information including all the City’s operations by financial activity.
o Fund Financial Statements – a detailed look at funds, reporting the Balance Sheet and Statement of Revenues, Expenditures and Changes in Fund Balance. o Notes to the Financial Statements (Notes) – a narrative explanation that accompanies the Basic Financial Statements.
Required Supplementary Information
• Budget to Actual Comparisons – for all governmental funds with a legally adopted budget.
• Pension Information – schedule of changes in the pension liability and related ratios; schedule of contributions by plan.
• OPEB Information – schedule showing Other Post-Employment Benefits Other Than Pensions since fiscal year 2017/18.
Other Supplementary Information
• Non-Major Funds combining financial statements including the balance sheet and statements of revenues, expenditures, and changes in fund balances. • Budget to Actual Comparisons – for non-major governmental funds with a legally adopted budget.
• Statements for Internal Service Funds.
• Schedule of Measure S Revenues and Uses for the fiscal year.
Statistical Section (current and historical information – up to 10 years) The last section of the ACFR, which is unaudited, contains schedules of statistical data about the City of Cotati in five major categories:
1. Financial Trends
2. Revenue Capacity
3. Debt Capacity
4. Demographic and Economic Information
5. Operating Information
These schedules, covering a ten-year period, provide operating context for the financial data presented in the financial section of the ACFR.
The ACFR is available on the City’s Financial Information webpage and attached to this staff report. Copies can be made available for review in the City Manager’s Office and in the Administrative Services Office.
Financial Highlights
Badawi & Associates, the independent auditor, has issued the City a clean audit opinion. This independent audit includes an evaluation of the appropriateness of accounting policies used by the City, evaluation of any significant accounting estimates made by City management as well as verification that the financial statements are free from material misstatement. The attached ACFR has no material misstatements. The “corrected misstatements” on the Letter to those Charged with Governance relate to correcting the recording of the new debt for the pension and street project as well as correcting the deferred loss on the same refunding.
Government-Wide Financial Statements (ACFR pages 18 - 21) • At the close of the fiscal year, the assets and deferred outflows of the City exceeded liabilities and deferred inflows of resources by $57.9 million (Total net position in the government-wide) compared to $54.9 million in FY 2021/22. The two significant contributing factors to the change in fund balance are as follows:
o Net increase of approximately $0.4 million or net investment in capital assets was due to the completion of streets and park capital improvement projects offset by increases in increasing debt services (See ACFR page 12 for list of significant capital assets additions).
o The Restricted Net Position of $14.2 million represents resources that are subject to external restrictions on their use, or by enabling legislation. Restricted net position is comprised of amounts restricted for housing ($4.5 million or 32.0%) capital and street projects ($7.1 million or 49.7%), public safety ($2.4 million or
17.0%), other restricted ($0.1 million, or 1.3%). Restricted net position increased by $6.8 million, or 91.9%, primarily due to $3.4 million in funds held in the street bonds project funding and reserved to pay for future street improvements and $2.4 million held in escrow for Caltrans Park and Ride developments. o The Unrestricted Net Position of ($0.2) million represents a net position of the City not restricted for any project or purpose. The decrease of $4.5 million, or 90%, was primarily due to the use of funds for operations for business type activities as well as increased restricted funds for capital projects, housing, and public safety.
• As of June 30, 2023, the City’s governmental activities reported a net position of approximately $43.2 million compared to $39.4 million in FY 2021/22, a $3.8 million
9.6% increase.
• As of June 30, 2023, the City’s business-type activities reported a net position of $14.6 million compared to $15.5 million in FY 2021/22, a $0.9 million or 5.5% decrease.
Fund Financial Statements (ACFR pages 23 - 37)
• As of the close of the current fiscal year, the City’s Governmental Funds reported a combined ending fund balance of approximately $18.5 million, a $3.2 million increase from the prior year. This change is primarily due to the increase in fund balances from the Streets Bonds Project Fund, which provided $1.7 million and the General Fund, which provided $1.2 million. The Nonmajor Governmental Funds are restricted for use primarily for street projects, community development projects and other special purposes. • Within the Governmental Funds ending fund balances were primarily made up of the following; (See Governmental Funds Balance Sheet on page 26). o $2.8 million for capital projects ($2.5 restricted for the park and ride lots, $0.1 restricted and $0.2 committed for other capital projects) o $4.3 million restricted for streets,
o $3.4 million restricted for affordable housing,
o $2.4 million committed for emergencies per required reserve policy. o $5.2 million is unassigned.
As of the close of the current fiscal year, the City’s General Fund reported an ending fund balance of $10.2 million compared to $9.0 million in FY 2021/22, a $1.2 million net change.
The City’s General Fund continued to maintain a significant balance above the 25% required reserve.
Financial Considerations
The audit report included at ACFR pages 1-4 provides reasonable assurance that the financial statements are free of any material misstatements and found no material weaknesses. This report signals the City’s quality of accounting and financial reporting and is an indication that City funds are being spent appropriately and as intended by the City Council, grantor agencies, and federal and State laws. It also helps maintain the City’s favorable bond ratings.
Environmental Issues
The creation of a Consolidated Annual Financial Reporting document is not a project under the California Environmental Quality Act (CEQA), per the definition of a project identified in Section 15378 of CEQA in that there will be no direct, or reasonably foreseeable indirect physical change in the environment.