STAFF REPORT
Meeting Date:
May 12, 2026
CONSENT
9 SUBJECT: FISCAL YEAR 2024/25 AUDIT REPORTS
RECOMMENDATION: It is recommended that the City Council:
1. Receive and file the Fiscal Year 2024/25 audit reports.
SUMMARY OF THE MATTER
The City’s Annual Comprehensive Financial Report (ACFR) for fiscal year ended June 30, 2025, was approved by Audit Committee on April 21, 2026, where auditors from the City’s audit firm LSL, LLP, presented the audit report that is included in the ACFR to the Audit Committee.
Each year the City issues an ACFR, which summarizes the financial activity of a local government for a given fiscal year, in accordance with financial statement presentation requirements prescribed by government accounting standards (Attachment 1). The ACFR is accompanied by an opinion from the City’s audit firm. The auditors expressed an unmodified opinion on the City’s fiscal year ended June 30, 2025, ACFR. The audit firm also issued other reports in relation to the City’s audit (Attachment 2, 3 and 4.) In addition, the audit firm issued a separate report for the Laguna Beach Public Financing Authority’s fiscal year ended June 30, 2025 (Attachment 5).
Lastly, a single audit was not required as the City did not expend over $750,000 in federal grant awards for fiscal year ended June 30, 2025.
DISCUSSION
Staff are pleased to present the ACFR for the fiscal year ended June 30, 2025. The ACFR is a set of financial statements for a government entity with the accounting requirements established by the Governmental Accounting Standards Board (GASB). An ACFR consists of three sections: the introductory section, the financial section, and the statistical section. The introductory section includes a letter of transmittal that provides an overview of the City. The financial section includes the audit opinion, management’s discussion and analysis, government-wide financial statements, fund financial statements, notes to the financial statements, and supplementary schedules. Management’s discussion and analysis provides narrative information as well as an overview and analysis of the City’s financial statements. The statistical section provides operational and demographic statistics and ten years of selected financial data.
Government-wide Financial Statements
The government-wide financial statements that are included in the ACFR provide the reader with an opportunity to ascertain the financial status of all funds and activities of the City in a single consolidated presentation. As of June 30, 2025, the City held $612 million in assets (Attachment 1, page 41). Those assets consisted of cash and investments ($171.8 million), capital assets ($419.2 million), receivables ($14.5 million) and prepaid expenses ($4.6 million). The government-wide financial statements also display the obligations of the City that represent claims against those assets. As of June 30, 2025, the City owed $155.7 million consisting of short-term obligations ($20.3 million), long-term obligations ($44.5 million), other FISCAL YEAR 2024/25 AUDIT REPORTS
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post-employment benefit plan liability for $5.6 million, and the City’s unfunded pension liability for employee service rendered to date ($85.4 million). The government-wide financial statements also report a consolidation of all revenues and expenses of the City. On a consolidated basis, City expenses exceeded revenues by $7.2 million (Attachment 1, page 43-44). Fiduciary funds are funds held on behalf of other parties. These funds (Assessment District Bond Funds) are excluded from the government-wide financial statements.
Fund Financial Statements
Local governments typically receive funding from multiple sources, some of which are restricted to specific uses and some of which are unrestricted. As a result, local governments establish separate funds to segregate the resources that are restricted for specific programs and activities. The fund financial statements that are contained in the ACFR display the financial activity of major funds in separate columns so that the reader can ascertain the revenues, expenditures, and remaining unspent fund balance of each of those major funds.
One of the City’s major funds is the General Fund. The General Fund is the primary operating fund of the City that pays for much of the City’s day-to-day operating expenditures. The General Fund accounts for the unrestricted resources of the City, the spending of which can be directed by City Council toward any lawful public use. The General Fund on Attachment 1 page 48 and 50 consists of the General Fund (fund 110 and 112), Measure LL (fund 113), Open Space (fund 114), Capital Improvement (fund 116 and 616), Parking Authority (fund 118), Parking In-Lieu (fund 120), Park In-Lieu (fund 122), Art In-Lieu (fund 123), Drainage (fund 124), Housing In-Lieu (fund 127), Transportation Infrastructure (fund 119), South Laguna (fund 136 and 636), Deposits (fund 510), Disaster Contingency (fund 140), Wildfire Mitigation and Fire Safety (fund 141 and 641), and Library Impact Fee (fund 111). Funds other than 110 and 112 are included in the presentation of the General Fund in the fund financial statements for reporting purposes, in accordance with government accounting standards. As of June 30, 2025, the General Fund’s spendable fund balance was $105.5 million.
Other Related Audit Reports
In addition to the audit firm’s opinion on the fair presentation of the City’s financial statements, audit firms are required to provide other related audit communications whenever they perform an audit of local government financial statements. Those related audit communications are included as Attachments 2, 3 and 4 to this agenda report. The content of these required audit communications is described below:
Report on Internal Control over Financial Reporting and on Compliance (Attachment 2) – This report summarizes the auditors’ evaluation of the City’s internal controls over financial reporting and its compliance with applicable laws, regulations, contracts, and grant requirements. While the auditors do not express an opinion on internal controls or compliance, they are required to report any identified material weaknesses, significant deficiencies, or instances of noncompliance encountered during the audit.
For fiscal year 2024-25, the City had one significant deficiency. The finding relates to internal controls over capital asset accounting. Management identified and corrected capital asset acquisitions from prior years that had not been capitalized or depreciated in the appropriate periods for both governmental and businesstype activities. The issue was primarily the result of staff turnover and a lack of consistent staffing in prior years, which contributed to ineffective controls over the identification and depreciation of capitalizable FISCAL YEAR 2024/25 AUDIT REPORTS
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assets. Management agrees with the finding and acknowledges that internal controls over capital asset accounting were not operating effectively in prior fiscal years. With the hiring of a new Accounting Manager in late October 2025, the City has strengthened oversight and review procedures, which resulted in the identification of these corrections. Management will continue to implement and formalize internal controls within the Administrative Services Department to ensure the City has accurate and timely financial data.
Required Communications with Those Charged with Governance (Attachment 3) – This letter outlines significant matters related to the conduct and results of the annual financial statement audit that are required to be communicated to the City Council. These communications include the auditors’ responsibilities, the planned scope and timing of the audit, significant accounting policies and estimates, any difficulties encountered during the audit, any corrected or uncorrected misstatements, and other relevant findings or observations. The purpose of this communication is to ensure transparency and keep the City Council informed of key audit-related matters and the overall quality of the City’s financial reporting. No significant difficulties or disagreements with management were reported.
Agreed-Upon Procedures Report on Procedures Applied to Appropriations Limit Worksheets (Attachment 4) – This report communicates the audit firm’s testing of the City’s computation of the statutory appropriation limit (Gann Limit). No findings are identified in this report.
Laguna Beach Public Financing Authority’s Audited Financial Statements The auditors gave an unmodified opinion on this report and no findings were identified. The Laguna Beach Public Financing Authority (the Authority) provides financing for the City to purchase or construct various facilities or improvements through the issuance of debt. This is a stand-alone report for the Authority’s activities. The only debt it has issued on the City’s behalf is the $11,660,000 bonds for the purchase of 30516 Coast Highway. The Authority transferred the bond proceeds to the City to purchase the property, and the Authority leased back the right to use the property to the City in return for an amount equal to the bond proceeds. The principal and interest owed on the lease-back of property by the City, cover the principal and interest debt service payments on the Authority’s bonds payable. Balance outstanding on the bond at June 30, 2025, was $11,240,000 and interest expense was $443,980 for the fiscal year.
FINANCIAL ANALYSIS
The recommended action has no financial impact to the budget.
ENVIRONMENTAL ANALYSIS
The recommended action has no environmental impact.
ATTACHMENTS
1. Annual Comprehensive Financial Report for the Fiscal Year Ended June 30, 2025 (Pgs. 5-202)
2. Independent Auditors’ Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards (Pgs. 203-206)
3. Required Communications with Those Charged with Governance (Pgs. 207-209) FISCAL YEAR 2024/25 AUDIT REPORTS
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4. Agreed-Upon Procedures Report on Procedures Applied to Appropriations Limit Worksheets (Pgs. 210- 212)
5. Laguna Beach Public Financing Authority’s Audited Financial Statements (Pgs. 213-227) Submitted By: .Michelle Bannigan Approved: .David A Kiff Michelle Bannigan, Director of
Administrative Services
Dave Kiff, City Manager
Report Prepared By:
Tiffany Fung, Accounting Manager