Item #03
Date: May 7, 2024
To: Mayor and City Council
From: Jennifer Styczynski, Finance Director
Jim Schaad, City Manager
Subject: City of Marysville Audited Financial Statements and Supplemental Information for Fiscal Year ended June 30, 2023
Recommendation:
Pass a Motion to receive and file the City of Marysville Audited Financial Statements and Supplemental Information for Fiscal Year Ended June 30, 2023.
Rationale for Recommendation:
The City is required to prepare and audit the Annual Financial Statements (AFS) for all financial transactions of all funds of the City for each fiscal year and on an annual basis. The AFS is prepared to communicate the financial health of the agency with those charged with governance, state/federal oversight agencies, investors and the general public.
Included in this year’s AFS is the Schedule of Expenditures of Federal Awards (SEFA), also known as a Single Audit, which is an organization-wide financial statement and federal awards’ audit which is required when a City expends $750,000 or more in federal funds in one year. It is intended to provide assurance to the Federal Government that the City has adequate internal controls in place and is generally in compliance with program requirements.
The purpose of this report is solely to describe the scope of audit testing of internal control and compliance and the results of that testing, and not to provide an auditor's opinion on the effectiveness 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 organization’s internal control and compliance.
Background:
On February 21, 2023, Richardson & Company, LLP (Certified Public Accountant (CPA)) was hired by the City of Marysville to perform the City’s audits covering Fiscal Years 2022-23, 2023-24, 2024-25 with options to extend for two additional years. The audit work for Fiscal Year 2022-23 began in August of 2023.
Discussion and Analysis
Richardson & Company, LLP completed the AFS for the City of Marysville for the year ending June 30, 2023, which included the following audit opinion:
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“In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Marysville, California, as of June 30, 2023, and the respective changes in financial position, and, where applicable, cash flows thereof, for the year then ended in accordance with accounting principles generally accepted in the United States of America..” However, their report identified one finding of internal control weaknesses related to capital asset accounting. They also issued a Management Letter containing other areas where recommendations for improvement can be made.
With the consolidation of government-wide net position into one statement and other changes such as the exclusion of Fiduciary Funds, net position may now serve as a useful indicator of a government’s financial position. For the City, assets exceeded liabilities by $36.70 million. The City reported positive balances in the investment in capital assets and restricted categories of net position, in both the governmental and business-type activities. The unrestricted net position were deficits in governmental and positive for business-type activities. Further analysis shows that total net position increased by $2.60 million to the current $36.70 million from 2022 to 2023.
During the fiscal year, General Fund revenue was $506,642 lower than the amended budget estimate, which was primarily due to budgeted grant funded projects not completed and reimbursed in the fiscal year. Two other noteworthy items were a decrease in sales and use tax due to a slight slowdown in the economy that was largely offset by an increase in property taxes and motor vehicle in lieu tax. The General Fund expense budget was $795,496 lower than the amended budget estimate, primarily due to several capital projects in progress that completion dates were extended into FY 2023-24.
As a recipient of Federal grant funds in excess of $750,000, a Single Audit Report is required to be submitted in compliance with the financial reporting requirement in accordance with Title 2, Code of Federal Regulations (CFR), Part 200 Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). The Single Audit Report includes the following:
• Independent Auditor’s 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;
• Independent Auditor’s Report on Compliance for Each Major Program; Report on Internal Control Over Compliance; and Report on the Schedule of Expenditures of Federal Awards Required by Uniform Guidance;
• Schedule of Findings and Questioned Costs;
• Summary Schedule of Prior Audit Findings;
• Schedule of Expenditures of Federal Awards;
• Notes to the Schedule of Expenditures of Federal Awards; and • Corrective Action Plan
As part of the Single Audit, the City’s Auditor's considered the City's internal control over financial reporting to determine audit procedures that are appropriate in the circumstances for the purpose of expressing their opinions on the City's financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control.
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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 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 City’s financial statements will not be prevented or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance.
The auditors identified a significant deficiency in internal control over compliance in regard to our Major Federal Award Program. Finding Number 2023-002 is related to the Schedule of Expenditures of Federal Awards (SEFA) as expenses and awards reported were revised during the single audit. Staff has addressed this issue in the Corrective Action Plan and will be working on resolving the finding prior to the fiscal year ending June 30, 2024. On a positive note, Finding Number 2022-002 in regard to tracking of equipment was considered resolved and will no longer be a finding in future audits.
These reports have been reviewed and approved by Management.
Alignment with City Council Goal(s):
Goal #1: Increase Financial Sustainability: By preparing and analyzing the Audit, the City may more accurately build the following year’s budget, comply with State law, and provide a tool for investors to evaluate the City’s financial stability and investment-worthiness.
Fiscal Analysis:
There is no fiscal impact associated with this action.
Attachments:
1) Audited Financial Statements for 2022-23
2) Management Letter
3) Governance Letter
4) Appropriations Limit Testing Letter