Item 522/2024
Final
City of Garden Grove
INTER-DEPARTMENT MEMORANDUM
To:
Lisa L. Kim From: Patricia Song
Dept:
City Manager Dept: Finance
Date: 1/14/2025
Subject: Receive and file the annual financial reports and auditor’s communication related to Fiscal Year 2023-24 annual audit. (Action Item)
OBJECTIVE
For the City Council to receive and file the annual financial reports and auditor’s communication related to Fiscal Year 2023-24 annual audit.
BACKGROUND
The City’s Municipal Code requires a complete financial statement and report be submitted to the City Council after the close of each fiscal year. In order to ensure the reliability of the information contained within the financial statements, the City contracted with an independent audit firm, Davis Farr LLP, to perform the annual financial audit. The goal of the audit is to provide reasonable assurance that the City’s financial statements are free from material misstatement. Davis Farr LLP issued an unmodified, or clean opinion for the City’s financial statements for the fiscal year ended June 30, 2024.
DISCUSSION
The annual audits of the financial statements of the City and its component units were completed on Decemb er 30, 2024. The financial statements were prepared in accordance with all applicable accounting standards in order to conform to Governmental Accounting Standards Board requirements. The independent auditor has issued an unmodified opinion of the City’s financial statements for the fiscal year ended June 30, 2024. An unmodified opinion concludes that the financial statements of the City are presented fairly, in all material respects, in accordance with generally accepted accounting principles.
In addition to reviewing and examining the City’s financial records, the auditors also reviewed the internal control framework of the City. Internal control is a set of activities, rules, and procedures implemented by the City to ensure the integrity of financial a nd accounting information, promote accountability, and prevent fraud. Internal control mechanism is embedded in the normal operating procedures, designed with the intent of safeguarding assets, minimizing errors, and ensuring that operations are conducted in an approved Item 522/2024
manner. There was no material weakness cited by the auditors during their review of the City internal control over its financial reporting.
Professional auditing standards require independent auditors to communicate with the City Council regarding various matters related to the audit. These include the auditors' responsibilities, the scope and timing of the audit, compliance requirements, identified audit risks, the City's significant accounting practices, any difficulties encountered during the audit, misstatements in the financial reports, disagreements between the auditors and City management, and other relevant information pertaining to the audit engagement. Please refer to Attachment 4 for the auditors' communication letter.
The audited financials show that for Fiscal Year 2023 -24, the City overall had a positive operating result of $34.9 million, due to increases in charges for services, grant funding, and higher investment earnings. Governmental activities’ revenues exceeded expenses by $16.8 million, and business-type activities had an increase of $18.1 million to its net position.
The General Fund is the primary operating fund of the City. For Fiscal Year 2023 -24, expenditures exceeded revenues by $19.5 million in the General Fund, primarily due to two significant one-time costs: the defeasance of the Garden Grove Public Financing Authority Lease Revenue Bonds, Series 2015A, on December 5, 2023, and the $11.9 million purchase of an office building in the Civic Center Plaza. The $20.8 million defeasance cost was recorded under Principal Retirement within debt service expenditures, while the acquisition cost of the office building was reported under Community and Economic Development for Fiscal Year 2023-24.
Total General Fund expenditures increased by $45.0 million compared to the previous fiscal year. Besides the above one -time spending, expenditures reported in Public Right -of-Way increased by $7.4 million from last year as the City continued to accelerate its pavement management program.
Public Safety expenditures also rose by $4.8 million, or 4.6%, from the previous year. In addition to ongoing efforts to expand the police workforce, the City made significant investments in several GGPD-led programs that directly benefit the community.
For the fiscal year ended June 30, 2024, the General Fund reported total revenue of $185.0 million, reflecting an increase of $6.4 million compared to the previous fiscal year. This growth was primarily driven by higher investment earnings resulting from favorable market interest rate conditions.
Total revenue from taxes was $159.6 million, this i s a slight decrease of $0.3 million from the prior year. Property tax, sales and use tax, and transient occupancy tax generated $152.3 million, or 82.3% of total General Fund revenues for the current fiscal year. Other taxes, in the amount of $7.3 million, included business license tax, franchise tax, and certain pass - through taxes.
Other revenues including licenses and permits, fines, penalties and forfeitures, charges for services, and investment income resulted in a combined total of $25.4 million for the fiscal year ended June 30, 2024.
Item 522/2024
The City strives to develop a budget that accurately aligns available resources and operational needs. Therefore, all budget variances are carefully reviewed and analyzed. A budget variance is the difference between the budgeted amount of expense or revenue and the actual amount.
The budget variance is favorable when the actual revenue is higher than budgeted o r when the actual expense is less than budgeted. Budget variances can occur for a variety of controllable and uncontrollable reasons, such as personnel savings due to vacancies, increases or decreases in development related activities, unspent funding in the current year due to projects crossing over fiscal years, implementation of technology to reduce cost, and the identification of additional revenue sources during the year.
Higher than expected tax revenues and investment earnings, as well as unanticipated recoveries contributed to an $18.3 million favorable variance in revenue for Fiscal Year 2023-
24. The majority of the $32.7 million favorable variance in expenditures resulted from unspent appropriations for capital projects, which will be carried forward to future years.
FINANCIAL IMPACT
There is no fiscal impact to receive and file the auditor’s reports related to Fiscal Year 2023- 24 annual financial audit. The fees for auditing services were provided for in the annual operating budgets.
RECOMMENDATION
It is recommended that the City Council receive and file the following reports and documentations:
City of Garden Grove Annual Comprehensive Financial Report (ACFR) for Fiscal Year 2023-24 (Attachment 1)
Report on Agreed-Upon Procedures Applied to Appropriation Limit Worksheets – City of Garden Grove (Attachment 2)
Report on Internal Control and Compliance of the Air Quality Improvement Fund (Attachment 3)
Auditor Communications to the City Council (Attachment 4)
ATTACHMENT(S)
Attachment 1 - City of Garden Grove Annual Comprehensive Financial Report (ACFR) for Fiscal Year 2023-24
Attachment 2 - Report on Agreed-Upon Procedures Applied to Appropriation Limit Worksheets – City of Garden Grove
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Attachment 3 - Report on Internal Control and Compliance of the Air Quality Improvement Fund
Attachment 4 - Auditor Communications to the City Council