CITY OF FREMONT, CALIFORNIA
Report to the City Council
For the Fiscal Year Ended June 30, 2021
CITY OF FREMONT, CALIFORNIA
Report to the City Council
For the Fiscal Year Ended June 30, 2021
Table of Contents
Page(s)
Transmittal Letter ........................................................................................................................................... i
Required Communications ............................................................................................................................ 1
www.mgocpa.com
Macias Gini & O’Connell LLP
2121 N. California Boulevard, Suite 750
Walnut Creek, CA 94596
i
Honorable Mayor and Members of the City Council
City of Fremont, California
We have audited the financial statements of the governmental ac tivities, each major fund, and the aggregate remaining fund information of City of Fremont, Califo rnia (City), as of and for the year ended June 30, 2021, and the related notes to the financial statement s, which collectively comprise the City’s basic financial statements. Professional standards require that we communicate to you the information related to our audit discussed on pages 1 through 5.
In planning and performing our audit of the basic financial sta tements of the City as of and for the year ended June 30, 2021, in accordance with auditing standards gene rally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards , issued by the Comptroller General of the United States, we cons idered the City’s internal control over financial reporting (internal control) as a basis for designing audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control. Accordingly, we do not express an opinion on the effectiveness of the City’s internal control.
A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing the ir assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reas onable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected, on a timely basis. A reasonable possibility exists when the likelihood of an event occurring is either reasonably possible or probable as defined as follows:
Reasonably possible. The chance of the future event or events occurring is more than remote but less than likely.
Probable. The future event or events are likely to occur.
Our consideration of internal control was for the limited purpo se described in the second paragraph and was not designed to identify all deficiencies in internal contr ol that might be material weaknesses. Given these limitations, during our audit we did not identify any def iciencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified.
The purpose of this communication, which is an integral part of our audit, is to describe, for management and those charged with governance, the scope of our testing of internal control and the results of that testing. Accordingly, this communication is not intended to be and should not be used for any other purpose. This report is a matter of public record and this does not limit the distribution of this report.
Walnut Creek, California
December 28, 2021
CITY OF FREMONT, CALIFORNIA
Report to the City Council
For the Fiscal Year Ended June 30, 2021
1 REQUIRED COMMUNICATIONS
We have audited the financial statements of the City as of and for the fiscal year ended June 30, 2021, and have issued our report thereon dated December 28, 2021. Profess ional standards require 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 June 7, 2021, ou r responsibility, as described by professional standards, is to form and express opinions about w hether the financial statements that have been prepared by management with your oversight are presented f airly, in all material respects, in accordance with accounting principles generally accepted in the United States of America. Our audit of the financial statements does not relieve you or management of your respective responsibilities.
Our responsibility, as prescribed by professional standards, is to plan and perform our audit to obtain reasonable, rather than absolute, assurance about whether the f inancial statements are free of material misstatement. An audit of financial statements includes conside ration of internal control over financial reporting as a basis for designing audit procedures that are ap propriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of th e entity’s internal control over financial reporting. Accordingly, as part of our audit, we considered the internal control of the City solely for the purpose of determining our audit procedures and not to provide any assurance concerning such internal control.
We are also responsible for communicating significant matters r elated to the audit that are, in our professional judgment, relevant to your responsibilities in ove rseeing the financial reporting process.
However, we are not required to design procedures for the purpo se of identifying other matters to communicate to you.
Planned Scope and Timing of the Audit
We conducted our audit consistent with the planned scope and ti ming we previously communicated to you.
Compliance with All Ethics Requirements Regarding Independence
The engagement team, others in our firm, as appropriate, our fi rm, and our network firms have complied with all relevant ethical requirements regarding independence.
CITY OF FREMONT, CALIFORNIA
Report to the City Council
For the Fiscal Year Ended June 30, 2021
2 Qualitative Aspects of the City’s 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. As described in Note 1(H) to the City’s basic financial statements , the City implemented Governmental Accounting Standards Board (GASB) Statement No. 84, Fiduciary Activities . The City evaluated all funds and activities in accordance with the statement and deter mined that certain City funds previously reported as agency funds should be reclassified in accordance w ith Statement No. 84 as special revenue funds. Those reclassifications are reflected by including those funds in the summarized comparative financial information for fiscal year ended June 30, 2020 in th e government-wide and governmental fund financial statements. The remaining agency funds, which meet th e criteria for fiduciary activities, are presented as custodial funds. The City also implemented GASB S tatement No. 90, Majority Equity Interests, an amendment of GASB Statements No. 14 and No. 61, and Statem ent No. 98, The Annual Comprehensive Financial Report and the implementation of these statements did not have a sign ificant impact on the City’s financial statements for the fiscal year ended June 30, 2021.
No matters have come to our attention that would require us, un der professional standards, to inform you about (1) the methods used to account for significant unusual t ransactions and (2) the effect of significant accounting policies in controversial or emerging areas for whic h there is a lack of authoritative guidance or consensus.
Significant Accounting Estimates
Accounting estimates are an integral part of the financial stat ements prepared by management and are based on management’s current judgments. Those judgments are no rmally based on knowledge and experience about past and current events and assumptions about future events. Certain accounting estimates are particularly sensitive because of their significa nce to the financial statements and because of the possibility that future events affecting them may differ ma rkedly from management’s current judgments.
The most sensitive estimates affecting the financial statements are:
Fair value of investments. The City’s investments are generally carried at fair value, whi ch is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurem ent date. All of the City’s investments are measured using level 2 inputs, except for inves tments in U.S. Treasuries which are measured using level 1 inputs, and investments in Californi a Local Agency Investment Fund, California Asset Management Program, and money market mutual fu nds which are not subject to fair value hierarchy disclosures and are measured at net asset value. Estimated allowance for losses on notes and loans receivable . The allowance for losses on notes and loans receivable was based on management’s estimate regardi ng the likelihood of collectability.
Useful life estimates for capital assets . The estimated useful lives of capital assets were based on management’s estimate of the economic lives of capital assets.
CITY OF FREMONT, CALIFORNIA
Report to the City Council
For the Fiscal Year Ended June 30, 2021
3 Net pension and Other Post-Employment Benefits (OPEB) liabilities, contributions, expenses, and other related balances. These balances for pension and OPEB are based on actuarial valuations, which incorporate actuarial methods and assumptions adopted by the City, performed by the California Public Employees’ Retirement System’s and the City’s independent actuaries, respectively.
Claims liabilities. The City is exposed to a variety of risks of loss due to gener al liability, workers’ compensation and other claims, and records an estimate of these losses based on actuarial studies performed by third-party actuaries. These stu dies are prepared based on the City’s prior claims history, which is used as a basis for extra polating losses for known and incurred but not reported claims. Actual loss experience may vary from these estimates. Pollution remediation obligations. Accrual of pollution remediation obligations is based on analysis performed by the City’s management.
We evaluated the key factors and assumptions used to develop th e accounting estimates described above and determined that it is reasonable in relation to the basic f inancial statements taken as a whole and in relation to the applicable opinion units.
Financial Statement Disclosures
Certain financial statement disclosures involve significant jud gment and are particularly sensitive because of their significance to financial statement users. The most se nsitive disclosures affecting the financial statements were the disclosures of the Retirement Benefits in N ote 9 and the Other Post-Employment Benefits (OPEB) in Note 10.
Significant Difficulties Encountered during the Audit
We encountered no significant difficulties in dealing with mana gement relating to the performance of the audit.
Corrected and Uncorrected Misstatements
For purposes of this communication, professional standards requ ire us to accumulate all known and likely misstatements identified during the audit, other than those tha t we believe are trivial, and communicate them to the appropriate level of management. Further, professio nal 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 financia l statements as a whole and each applicable opinion unit. Management has corrected all identified misstatements.
In addition, professional standards require us to communicate t o you all material, corrected misstatements that were brought to the attention of management as a result of our audit procedures. None of the misstatements identified by us as a result of our audit procedu res and corrected by management were material, either individually or in the aggregate, to the finan cial statements taken as a whole or applicable opinion units.
CITY OF FREMONT, CALIFORNIA
Report to the City Council
For the Fiscal Year Ended June 30, 2021
4 Disagreements with Management
For purposes of this letter, professional standards define a di sagreement with management as a matter, whether or not resolved to our satisfaction, concerning a finan cial accounting, reporting, or auditing matter, which could be significant to the City’s financial stat ements 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 manageme nt, which are included in the letter dated December 28, 2021.
Management’s Consultations with Other Accountants
In some cases, management may decide to consult with other acco untants about auditing and accounting matters. Management informed us that, and to our knowledge, the re 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 C ity, we generally discuss a variety of matters, including the application of accounting principles and auditing standards, operating and regulatory conditions affecting the entity, and operational pla ns and strategies that may affect the risks of material misstatement. None of the matters discussed resulted i n a condition to our retention as the City’s auditors.
Other Information in Documents Containing Audited Financial Statements
Pursuant to professional standards, our responsibility as audit ors for other information in documents containing the City’s audited financial statements does not ext end beyond the financial information identified in the audit report, and we are not required to perf orm any procedures to corroborate such other information. However, in accordance with such standards:
Required Supplementary Information
We applied certain limited procedures to the management’s discu ssion and analysis, the budgetary comparison schedules, the modified approach for the City’s infr astructure information, and the schedules related to the pension and other postemployment benefits plans which are required supplementary information (RSI) that supplements the basic financial statemen ts. Our procedures consisted of inquiries of management regarding the methods of preparing the informatio n and comparing the information for consistency with management’s responses to our inquiries, the b asic financial statements, and other knowledge we obtained during our audit of the basic financial s tatements. We did not audit the RSI and do not express an opinion or provide any assurance on the RSI.
CITY OF FREMONT, CALIFORNIA
Report to the City Council
For the Fiscal Year Ended June 30, 2021
5 Supplementary Information and Other Sections
We were engaged to report on th e combining and individual fund financial statements and schedules, which accompany the financial statements but are not RSI. With respect to this supplementary information, we made certain inquiries of management and evalua ted the form, content, and methods of preparing the information to determine that the information complies with accounting principles generally accepted in the United States of America, the method of prepari ng it has not changed from the prior period, and the information is appropriate and complete in relation to our audit of the financial statements.
We compared and reconciled the supplementary information to the underlying accounting records used to prepare the financial statements or to the financial statements themselves.
We were not engaged to report on the introductory and statistical sections, which accompany the financial statements but are not RSI. Such information has not been subje cted to the auditing procedures applied in the audit of the basic financial statements, and accordingly, w e do not express an opinion or provide any assurance on it.
Our responsibility also includes communicating to you any infor mation 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 inconsistent with the inf ormation, or manner of its presentation, appearing in the financial statements.