735 E. Carnegie Dr. Suite I 00
San Bernardino , CA 92408
909 889 0871 T
909 889 5361 F
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PARTNERS
Terry P Shea. CPA
Scott W Manno, CPA. CGMA
Leena Shanbhag, CPA. MST. CGMA
Bradferd A Weleb,r. CPA. MBA. CGMA
Jenny W Liu, CPA. MST
Gardenya Duran, CPA. CGMA
Brianna Schultz, CPA. CGMA
Brenda L. Odle, CPA. MST (Partner Emeritus)
MANAGERS/ STAFF
Seong-Hyea Lee, CPA. MBA
Evelyn Mo, entin-Barcena, CPA
Veronica Hernandez, CPA
Laura Arvizu, CPA
John Maldonado, CPA. MSA
Julia Rodnguez Fuentes. CPA. MSA
Dem, Hite. CPA
Jeffrey McKennan. CPA
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December 21, 2023
To the Honorable City Council
City of Menifee, California
We have audited the financial statements of the City of Menifee (the City) as of and for the year ended June 30, 2023, and have issued our report thereon dated December 21, 2023. Professional standards require that we advise you of the following matters relating to our audit.
Our Responsibility in Relation to the Financial Statement Audit
As communicated in our engagement letter dated April 19, 2023, our responsibility, as described by professional standards, is to form and express opinions about whether the financial statements that have been prepared by management with your oversight are presented fairly, in all material respects, in accordance with accounting principles generally accepted in the United States of America. Our audit of the financial statements does not relieve you or management of your respective responsibilities.
Our responsibility, as prescribed by professional standards, is to plan and perform our audit to obtain reasonable, rather than absolute, assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control over financial reporting. Accordingly, as part of our audit, we considered the internal control of the City solely for the purpose of determining our audit procedures and not to provide any assurance concerning such internal control.
We are also responsible for communicating significant matters related to the audit that are, in our professional judgment, relevant to your responsibilities in overseeing the financial reporting process. However, we are not required to design procedures for the purpose of identifying other matters to communicate to you.
Honorable City Council
City of Menifee
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Planned Scope and Timing of the Audit
We conducted our audit consistent with the planned scope and timing we previously communicated to you.
Compliance with All Ethics Requirements Regarding Independence
The engagement team and others in our firm, as appropriate, and our firm have complied with all relevant ethical requirements regarding independence.
Significant Risks Identified
We have identified the possibility of the following significant risks:
Management's override of internal controls over financial reporting – Management override of internal controls is the intervention by management in handling financial information and making decisions contrary to internal control policy.
Revenue recognition – Revenue recognition is a generally accepted accounting principle that refers to the conditions under which an entity can recognize a transaction as revenue. Auditing standards indicate that recognizing revenue is a presumed fraud risk and usually classified as a significant risk in most audits.
These significant risks are presumptive in most audits and merit attention by the auditors due to the direct impact over financial reporting and internal control processes. Although identified as significant risks, we noted no matters of management override of controls or deviations from generally accepted accounting principles which caused us to modify our audit procedures or any related matters which are required to be communicated to those charged with governance due to these identified risks.
Qualitative Aspects of the City’s Significant Accounting Practices
Significant Accounting Policies
Management has the responsibility to select and use appropriate accounting policies. A summary of the significant accounting policies adopted by the City is included in Note 1 to the financial statements. The City has adopted GASB Statement No. 96, Subscription Based IT Arrangements, during the fiscal year 2023. No matters have come to our attention that would require us, under professional standards, to inform you about (1) the methods used to account for significant unusual transactions and (2) the effect of significant accounting policies in controversial or emerging areas for which there is a lack of authoritative guidance or consensus.
Honorable City Council
City of Menifee
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Significant Accounting Estimates
Accounting estimates are an integral part of the financial statements prepared by management and are based on management’s current judgment s. Those judgments are normally based on knowledge and experience about past and current events and assumptions 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 markedly from management’s current judgments.
The most sensitive accounting estimates affecting the financial statements were:
Management’s estimate of fair market value of investments based on market values provided by outside sources. We evaluated the key factors and assumptions used to develop the fair market value of investments in determining that it is reasonable in relation to the financial statements taken as a whole.
Management’s estimate of depreciation expense is based on the useful lives of acquired assets. We evaluated the key factors and assumptions used to develop depreciation expense in determining that it is reasonable in relation to the financial statements taken as a whole.
Management’s estimate of amortization of deferred inflows of resources related to leases is based on the remaining number of years of lease terms. We evaluated the key factors and assumptions used to develop the estimated lease terms in determining that it is reasonable in relation to the financial statements taken as a whole.
Management’s estimate of claims payable is based on claims loss reports from third party claims management companies. We evaluated the key factors and assumptions used to develop the claims payable estimate in determining that is reasonable in relation to the financial statements taken as a whole.
The estimate of the net pension liability and the related deferred amounts is based on actuarial reports provided by independent actuaries. We evaluated the key factors and assumptions used to develop the estimate in determining that it is reasonable in relation to the statements taken as a whole.
The estimate of the total OPEB liability and the related deferred amounts is based on actuarial reports provided by independent actuaries. We evaluated the key factors and assumptions used to develop the estimate in determining that it is reasonable in relation to the statements taken as a whole.
Management’s estimate of lease liabilities, SBITA liabilities, right-to-use assets, and asset amortization is based on present value calculations using certain terms and assumptions in the lease and subscription agreements and estimated useful lives of assets in accordance with generally accepted accounting principles. We evaluated the key factors and assumptions used to develop the lease related estimates in determining that it is reasonable in relation to the financial statements taken as a whole.
Honorable City Council
City of Menifee
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Financial Statement Disclosures
Certain financial statement disclosures involve significant judgment and are particularly sensitive because of their significance to financial statement users. The most sensitive disclosures affecting the City’s financial statements relate to:
The disclosure of fair value of investments in the basic financial statements represents amounts susceptible to market fluctuations.
The disclosure of capital assets, net, in the basic financial statements is based on historical information which could differ from actual useful lives of each capitalized item.
The disclosure of net pension liability and the related deferred amounts in the basic financial statements is based on actuarial assumptions. Actual future liabilities may vary from disclosed estimates.
The disclosure of net OPEB liability and the related deferred amounts in the basic financial statements is based on actuarial assumptions. Actual future liabilities may vary from disclosed estimates.
The disclosure of claims payable in the basic financial statements is based on claims loss reports from third party claims management companies. Actual future liabilities may vary from disclosed estimates.
The disclosure of leases liabilities, right-to-use assets, and asset amortization in the basic financial statements is based on certain terms and assumptions in the lease agreements which could differ from actual amounts.
The disclosure of subscription liabilities, right-to-use assets, and asset amortization in the basic financial statements is based on certain terms and assumptions in the subscription agreements which could differ from actual amounts.
The financial statement disclosures are neutral, consistent, and clear.
Significant Difficulties Encountered during the Audit
We encountered no significant difficulties in dealing with management relating to the performance of the audit.
Uncorrected and Corrected Misstatements
For purposes of this communication, professional standards also require us to accumulate all known and likely misstatements identified during the audit, other than those that we believe are trivial, and communicate them to the appropriate level of management. Further, professional standards require us to also communicate the effect of uncorrected misstatements related to prior periods on the relevant classes of transactions, account balances or disclosures, and the financial statements as a whole and each applicable opinion unit. There are no known misstatements that were uncorrected by management that we believe are not trivial.
Honorable City Council
City of Menifee
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In addition, professional standards require us to communicate to you all material, corrected misstatements that were brought to the attention of management as a result of our audit procedures. There were no corrected misstatements that we deemed material brought to the attention of management as a result of our audit procedures.
Disagreements with Management
For purposes of this letter, professional standards define a disagreement with management as a matter, whether or not resolved to our satisfaction, concerning a financial accounting, reporting, or auditing matter, which could be significant to the City’s financial statements or the auditor’s report. No such disagreements arose during the course of the audit.
Representations Requested from Management
We have requested certain written representations from management, which are included in the attached letter dated December 21, 2023.
Management’s Consultations with Other Accountants
In some cases, management may decide to consult with other accountants about auditing and accounting matters. Management informed us that, and to our knowledge, there were no consultations with other accountants regarding auditing and accounting matters.
Other Significant Matters, Findings, or Issues
In the normal course of our professional association with the City, we generally discuss a variety of matters, including the application of accounting principles and auditing standards, significant events or transactions that occurred during the year, operating and regulatory conditions affecting the entity, and operational plans and strategies that may affect the risks of material misstatement.
None of the matters discussed resulted in a condition to our retention as City’s auditors.
Other Information Included in Annual Reports
Pursuant to professional standards, our responsibility as auditors for other information, whether financial or nonfinancial, included in the City’s annual report, does not extend beyond the information identified in the audit report, and we are not required to perform any procedures to corroborate such other information. However, in accordance with such standards, we have:
Read the transmittal letter and statistical section and considered whether such information, or the manner of its presentation, was materially inconsistent with its presentation in the financial statements.
Our responsibility also includes communicating to you any information which we believe is a material misstatement of fact. Nothing came to our attention that caused us to believe that such information, or its manner of presentation, is materially inconsistent with the information, or manner of its presentation, appearing in the financial statements.
Honorable City Council
City of Menifee
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This report is intended solely for the 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,
San Bernardino, California
December 21, 2023
December 21, 2023.