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Brea, CA 92821
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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
To the Honorable Mayor and Members of the City Council
City of Manhattan Beach, California
We have audited, in accordance with the 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, the financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Manhattan Beach, California (the “City”), as of and for the year ended June 30, 2023, and t he related notes to the financial statements, which collectively comprise the City’s basic financial statements, an d have issued our report thereon dated January 29, 2024.
Report on Internal Control over Financial Reporting
In planning and performing our audit of the financial statements, we considered the City’s internal control over the City’s financial reporting (internal control) as a basis for de signing 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 allo w management or employees, in the normal course of performing their 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 reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected, on a timely b asis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less s evere than a material weakness, yet important enough to merit attention by those charged with governance.
Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies and therefore, material weaknesses or significant deficiencies may exist that were not identified. We identified a certain deficiency in internal control, described in the accompanying schedule of findings and responses as item 2023-001 that we consider to be a material weakness.
Report on Compliance and Other Matters
As part of obtaining reasonable assurance about whether the City’s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and ma terial effect on the financial statements.
However, providing an opinion on compliance with those provisio ns was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.
To the Honorable Mayor and Members of the City Council
City of Manhattan Beach, California
City’s Response to Findings
Government Auditing Standards requires the auditor to perform limited procedures on the City ’s response to the findings identified in our audit and described in the accompany ing schedule of findings and responses. The City’s response was not subjected to the other auditing procedures app lied in the audit of the financial statements and, accordingly, we express no opinion on the response.
Purpose of This Report
The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the e ffectiveness of the City’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City’s inter nal control and compliance. Acco rdingly, this communication is not suitable for any other purpose.
Brea, California
January 29, 2024
To the Honorable Mayor and Members of the City Council
City of Manhattan Beach, California
SCHEDULE OF FINDINGS AND RESPONSES
Reference Number 2023-001: Capital assets restatement
Evaluation of Finding:
Material Weakness
Condition:
Vehicles purchased in the prior fi scal year were expensed when they should have been capitalized and the ERP system implementation acquired in prior fiscal year should have been capitalized under GASB Statement No. 51, Accounting and Financial Reporting for Intangible Assets.
Criteria
The City defines capital assets as land, machinery, vehicle, eq uipment, buildings and improvements, leases, subscriptions and intangible assets with an initial, individual cost of more than $5,000 and $100,000 for infrastructure assets (roads, bridges, curbs and gutters, stree ts, walk-streets and sidewalks, parks and recreation improvements) with an estimated useful life in excess of two ye ars. Such assets should be recorded at historical cost or estimated historical cos t if purchased or constructed a nd amortized/depreciated of their estimated useful lives.
Cause of Condition
The City records capital assets as capital outlay expenditure d uring the year and missed capitalized expenditure during its year-end review process.
Effect or Potential Effect of Condition
Capital assets in the prior fiscal year were understated by $1,208,800.
Recommendation
We recommend that management make a complete review of capital outlay expenditures at the end of the fiscal year end to insure that capital assets have been capitalized in accordance with City’s policy and that projects under completion have been reclassified as construction in progress.
Client Response
The vehicles were capitalized incorrectly in the wrong fiscal year because the effective date was based on the date of the entry rather than the fiscal year. The ERP implementation is still in progress but should have been capitalized within the fiscal year of the financial Go-Live. City staff is currently implementing control measures to ensure accurate recording of future capital assets.