January 19, 2022
To the Honorable Mayor and the Members of the City Council of the City of Hercules
Hercules, California
We have audited the financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Hercules (the “City”) for the year ended June 30, 2021.
Professional standards require that we provide you with information about our responsibilities under generally accepted auditing standards (and, if applicable, Government Auditing Standards and the Uniform Guidance), as well as certain information related to the planned scope and timing of our audit. We have communicated such information in our letter to you dated June 1, 2021. Professional standards also require that we communicate to you the following information related to our audit.
Significant Audit Matters
Qualitative Aspects of Accounting Practices
Management is responsible for the selection and use of appropriate accounting policies. The significant accounting policies used by the City are described in Note 1 to the financial statements. As described in Note 1 to the basic financial statements, the City implemented the following accounting standards:
New Accounting Standards
GASB Statement No. 84, Fiduciary Activities. This statement establishes st andards relating accounting and financial reporting for identifying and financial reporting of fiduciary activities. Those provisions are effective for reporting periods beginning after December 15, 2019, as amended by GASB Statement No. 95. Application of this statement was effective starting fiscal year ending June 30, 2021. See Note 17 of the City’s ACFR for details.
GASB Statement No. 98. The Annual Comprehensive Financial Report . This statement establishes the term annual comprehensive financial report and its acronym ACFR. That new term and acronym replace instances of comprehensive annual financial report and its acronym in generally accepted accounting principles for state and local governments. Those provision are effective for fiscal years ending after December 15, 2021. The City has elected early implementation of this statement. Application of this statement did not have a material effect on the City’s financial statements for the fiscal year ending June 30, 2021.
No other new accounting policies were adopted and the application of existing policies was not changed during 2021.
We noted no transactions entered into by the City during the year for which there is a lack of authoritative guidance or consensus. All significant transactions have been recognized in the financial statements in the proper period. 200 E. Sandpointe Ave., Suite 600, Santa Ana, California 92707 Tel: 949-777-8800 • Fax: 949-777-8850
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3939352 Pun & McGeady_L_final.pdf 2 1/14/14 3:48 PM To the Honorable Mayor and the Members of the City Council of the City of Hercules
Hercules, California
Accounting estimates are an integral part of the financ ial statements prepared by management and are based on management’s knowledge and experience about past and current events and assump tions 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 significantly from those expected. The most sensitive estimate(s) affecting the City’s financial statements were:
Management’s estimate of the depreciation on capital assets is based on the industry standard and past experience on actual useful life of the asset groups. We evaluated the key factors and assumptions used to develop the depreciation on capital assets in determining that it is reasonable in relation to the financial statements taken as a whole.
Management’s estimate of the net pension liabilit y is based on the actuarial valuation on total pension liability and based on financial statements on fiduciary net position for CalPERS plans. We evaluated the key factors and assumptions used to develop the net pension liability in determining that it is reasonable in relation to the financial statements taken as a whole.
Management’s estimate of the net other postempl oyment benefits (“OPEB”) liability is based on the actuarial valuation on total OPEB liability an d financial statements on fiduciary net position.
We evaluated the key factors and assumptions used to develop the OPEB liability in determining that it is reasonable in relation to the financial statements taken as a whole.
Certain financial statement disclosures are particularly sen sitive because of their signifi cance to financial statement users. The most sensitive disclosure(s) affecting the financial statements was were:
Note 1 – Summary of Significant Accounting Policies
Note 8 – Retirement Plans
Note 10 – Other Postemployment Benefits
Note 12 – Commitments and Contingencies
Note 14 – Stewardship, Compliance, and Accountability Note 16 – Special Items – Settlement Payable to Department of Finance Note 17 – Prior Period Adjustments
The financial statement disclosures are neutral, consistent, and clear.
Difficulties Encountered in Performing the Audit
We encountered no significant difficulties in dealing with management in performing and completing our audit.
Corrected and Uncorrected Misstatements
Professional standards require us to accumulate all known and likely misstatements identified during the audit, other than those that are clearly trivial, and communicate them to the appropriate level of management. Management has corrected all such misstatements. In ad dition, none of the misstatements det ected as a result of audit procedures and corrected by management were material, either individually or in the aggregate, to each opinion unit’s financial statements taken as a whole.
To the Honorable Mayor and the Members of the City Council of the City of Hercules
Hercules, California
Disagreements with Management
For purposes of this letter, a disagreement with management is a financial accounting, repor ting, or auditing matter, whether or not resolved to our satisfaction, that could be significant to the financial statements or the auditor’s report.
We are pleased to report that no such disagreements arose during the course of our audit.
Management Representations
We have requested certain representations from management that are included in the management representation letter dated January 19, 2022.
Management Consultations with Other Independent Accountants
In some cases, management may decide to consult with other account ants about auditing and accounting matters, similar to obtaining a “second opinion” on certain situations . If a consultation involves application of an accounting principle to the City’s financial statements or a determina tion of the type of auditor’s opinion that may be expressed on those statements, our professional standards require the c onsulting accountant to check with us to determine that the consultant has all the relevant facts. To our knowledge, there were no such consultations with other accountants.
Other Audit Findings or Issues
We generally discuss a variety of matters, including the a pplication of accounting principles and auditing standards, with management each year prior to retention as the City’s auditors. However, these discussions occurred in the normal course of our professional relationship and our responses were not a condition to our retention.
Other Matters
We applied certain limited procedures to Management’s Discussions and Analysis (“MD&A”), Budgetary Comparison Schedule, the Schedules of Changes in Net Pension Liability and Related Ratios, the Schedules of Contributions – Pensions, the Schedules of Changes in Net Other Postem ployment Benefits Liability a nd Related Ratios, and the Schedule of Contributions – Other Post employment Benefits, which are require d supplementary information (“RSI”) that supplements the basic financial statements. Our pro cedures consisted of inquiries of management regarding the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other know ledge we obtained during our a udit of the basic financial statements. We did not audit the RSI and do not express an opinion or provide any assurance on the RSI.
We were engaged to report on the Combining and Individual Nonmajor Fund Financial Statements which accompany the financial statements but are not RSI. With respect to this supplementary information, we made certain inquiries of management and evaluated the form, c ontent, and methods of preparing the information to determine that the information complies with accounting principles generally accep ted in the United States of America, the method of preparing it has not changed from the prior period, and the in formation is appropriate and complete in relation to our audit of the financial statements. We compared and r econciled 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 no t been subjected to the auditing proced ures applied in the audit of the basic financial statements, and accordingly, we do not express an opinion or provide any assurance on it.
To the Honorable Mayor and the Members of the City Council of the City of Hercules
Hercules, California
Restriction on Use
This information 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.
Very truly yours,
Santa Ana, California