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 entity’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.
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. Given these limitations, during our audit we did identify certain deficiencies in internal control that we consider to be significant deficiencies, described in the accompanying schedule of findings and responses as items 2021-001 and 2021-002. During our audit, we did not identify any material weaknesses. However, material weaknesses may exist that have not been identified.
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28 Compliance and Other Matters
As part of obtaining reasonable assurance about whether the Park’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 material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions 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.
The Park’s Responses to the Findings
The Park’s responses to the findings identified in our audit is described in the accompanying schedule of findings and responses. The Park’s responses were not subjected to the auditing procedures applied in the audit of the financial statements and, accordingly, we express no opinion on them.
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 effectiveness of the Park’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 entity’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose.
HUDSON HENDERSON & COMPANY, INC.
Fresno, California
October 29, 2021
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29 TUOLUMNE RIVER REGIONAL PARK
SCHEDULE OF FINDINGS AND RESPONSES
FOR THE YEAR ENDED JUNE 30, 2021
Finding 2021-001 – Significant Deficiency
Accounts Payable Cutoff Procedures
Criteria:
Tuolumne River Regional Park (the Park) should design and implement internal controls over the accounts payable year end accrual process to ensure that balances can be vouched, tested, and presented in accordance with generally accepted accounting principles (GAAP).
Condition:
Per testing performed over subsequent disbursements, we noted expenditures for goods and services that were incurred prior to the end of the fiscal year that were not properly recorded in the correct accounting period. This resulted in material adjustments to accrue those expenses as accounts payable as of the fiscal year-end.
Cause of Condition:
The Park lacked a proper cut-off financial closing procedure that identified all payables that should be recorded back in the current fiscal year.
Effect of Condition:
This resulted in expenditures not being accrued or posted to the correct fiscal year and thus a material audit adjustment was recorded.
Recommendation:
We recommend that the Park implement and develop, as part of the year-end closing procedures, a process to review subsequent disbursements to identify those disbursements that were incurred in the previous fiscal year.
Management’s Response:
The City, Financial Analyst III, assigned to the Park will coordinate regular meetings with Park Management staff, to request updates on outstanding invoices to ensure all invoices outstanding after the end of the fiscal year are accrued back to the proper fiscal year. Financial Analyst in coordination with Park Management staff will analyze the payment history for all vendors to confirm there are no missing invoices. Additional training and guidance will be provided by the Accounting Manager to department staff on how to address outstanding invoices which may have charges in dispute that prevent timely payment prior to the end of the fiscal year or shortly after. #1..
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30 TUOLUMNE RIVER REGIONAL PARK
SCHEDULE OF FINDINGS AND RESPONSES (continued)
FOR THE YEAR ENDED JUNE 30, 2021
Finding 2021-002 – Significant Deficiency
Accounts Receivable/Revenue Procedures
Criteria:
Tuolumne River Regional Park (the Park) should design and implement internal controls over the accounts receivable year end accrual process to ensure that balances can be vouched, tested, and presented in accordance with generally accepted accounting principles (GAAP).
Condition:
During our fieldwork, we noted the Park did not have adequate procedures to accurately report accounts receivable balances and revenues as of year-end and for the year then ended. The procedures currently in place did not ensure the year-end account balances were accurately presented for revenues, receivables, and unearned revenues, including the reconciliation of funds to be available within the proper revenue recognition period; resulting in material audit adjustments to reconcile these balances.
Cause of Condition:
Internal controls have not been suitably designed and implemented over the accounts receivable closing process to ensure current year revenues, receivables, and unearned revenue accurately reflect current year activity in accordance with the modified accrual basis of accounting, which resulted in current year balances of revenue, receivables, and unearned revenue to be incorrect prior to the start of the audit.
Effect of Condition:
Revenues and receivables not properly stated in accordance with GAAP resulted in material audit adjustments of current year revenues, receivables, and unearned revenues.
Recommendation:
We recommend that the Park implement stronger policies and closing procedures over revenue recognition and deferrals as part of the year-end closing procedures. This should include training and assistance in the original posting of entries to allow ease of reconciliation and reporting for the financial reporting process.
Management’s Response:
Additional training and guidance will be provided by the Accounting Manager to staff responsible for accounting for the revenues, receivables and unearned revenues for the Park. The Financial Analyst responsible for the year-end revenue accrual and deferral processes will be required to update the year-end check list to address the analysis of all outstanding receivable balances, revenue recognition and deferrals as of the end of the fiscal year. #1..
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31 TUOLUMNE RIVER REGIONAL PARK
SCHEDULE OF PRIOR YEAR FINDINGS AND RESPONSES
FOR THE YEAR ENDED JUNE 30, 2020
There were no prior year financial statement findings reported in accordance with Government Auditing Standards. #1..
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CITY OF MODESTO
TRANSPORTATION DEVELOPMENT ACT FUNDS
FINANCIAL STATEMENTS
WITH
INDEPENDENT AUDITORS’ REPORT
FOR THE YEAR ENDED
JUNE 30, 2021
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TABLE OF CONTENTS
Page
Independent Auditors’ Report.......................................................................................................................... 1 Basic Financial Statements:
Fund Financial Statements:
Balance Sheet – Local Transportation Special Revenue Funds................................................................. 4 Statement of Revenues, Expenditures, and Changes in Fund Balances Local Transportation Special Revenue Funds ......................................................................................... 5 Statement of Net Position – Bus Enterprise Fund .................................................................................... 6 Statement of Revenues, Expenses, and Changes in Fund Net Position Bus Enterprise Fund................................................................................................................................ 7 Statement of Cash Flows – Bus Enterprise Fund ...................................................................................... 8 Notes to the Financial Statements ........................................................................................................... 10 Required Supplementary Information (Unaudited):
Schedule of the Bus Fund’s Proportionate Share of the Net Pension Liability ....................................... 27 Schedule of the Bus Fund’s Contributions.............................................................................................. 28 Schedule of Changes in the Net OPEB Liability and Related Ratios........................................................ 29 Schedule of Contributions – OPEB Plan .................................................................................................. 30 Other Reports:
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 and the Transportation Development Act ................................................................................................................... 31 Independent Accountants’ Report on Compliance with the Public Transportation Modernization, Improvement, and Service Enhancement Account (PTMISEA) ............................................. 33 #1..
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7473 N. INGRAM AVE., SUITE 102 ⬧ FRESNO, CA 93711
_______________________________________________________________________________________________ P (559) 412-7576 ⬧ F (559) 493-5325 ⬧ WWW.HHCCPAS.COM
INDEPENDENT AUDITORS’ REPORT
To the Honorable Members of the City Council
City of Modesto, California
Report on the Financial Statements
We have audited the accompanying financial statements of the Local Transportation Special Revenue Funds and the Bus Enterprise Fund (collectively known as the Transportation Development Act Funds) of the City of Modesto, California (the City), as of and for the year ended June 30, 2021, and the related notes to the financial statements, which collectively comprise the Transportation Development Act Funds basic financial statements as listed in the table of contents.
Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally 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. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.
Opinions
In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the Local Transportation Special Revenue Funds and the Bus Enterprise Fund of the City as of June 30, 2021, 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. #1..
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2 Emphasis of Matter
Basis of Presentation
As discussed in Note 1, the financial statements of the Transportation Development Act Funds of the City are intended to present the financial position, the changes in financial position, and, where applicable, cash flows of only that portion of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City that is attributable to the transactions of the Transportation Development Act Funds. They do not purport to, and do not present fairly the financial position of the City as of June 30, 2021, the changes in its financial position, or, where applicable, its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. Our opinion is not modified with respect to this matter.
Other Matters
Prior-Year Comparative Information
The financial statements include summarized prior-year comparative information. Such information does not include all of the information required or sufficient detail to constitute a presentation in conformity with accounting principles generally accepted in the United States of America. Accordingly, such information should be read in conjunction with the financial statements for the year ended June 30, 2020, from which such summarized information was derived. We have previously audited the 2020 financial statements, and we expressed an unmodified audit opinion on the financial statements in our report dated November 13, 2020. In our opinion, the summarized comparative information presented herein as of and for the year ended June 30, 2020, is consistent, in all material respects, with the audited financial statements from which it has been derived.
Required Supplementary Information
Management has omitted management’s discussion and analysis (MD&A) and the respective budgetary comparison schedules for the special revenue funds that accounting principles generally accepted in the United States of America require to be presented to supplement the financial statements. Such missing information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. Our opinion on the basic financial statements is not affected by this missing information.
Accounting principles generally accepted in the United States of America require that the schedule of the Bus Fund’s proportionate share of the net pension liability, schedule of the Bus Fund’s contributions, schedule of changes in the net OPEB liability and related ratios, and schedule of contributions – OPEB plan on pages 27-30 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context.
We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.
Other Reporting Required by Government Auditing Standards and the Transportation Development Act In accordance with Government Auditing Standards, we have also issued our report dated November 24, 2021, on our consideration of the City’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters as it relates to the Transportation Development Act Funds. The purpose of that report is solely to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the City’s internal control over financial reporting or on compliance as it relates to the Transportation Development Act Funds.
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3 That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City’s internal control over financial reporting and compliance as it relates to the Transportation Development Act Funds.
HUDSON HENDERSON & COMPANY, INC.
Fresno, California
November 24, 2021
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The accompanying notes are an integral part of the financial statements. 4 CITY OF MODESTO
TRANSPORTATION DEVELOPMENT ACT FUNDS
BALANCE SHEET - LOCAL TRANSPORTATION SPECIAL REVENUE FUNDS JUNE 30, 2021
(with comparative totals as of June 30, 2020)
NonMotorized
Streets
and Roads 2021 2020
ASSETS
Cash and investments $ 1,040,024 $ 427,374 $ 1,467,398 $ 1,751,450 Interest receivable 2,454 - 2,454 4,482
Due from other governments 189,759 - 189,759 -
Total Assets $ 1,232,237 $ 427,374 $ 1,659,611 $ 1,755,932
LIABILITIES
Unearned revenue $ 1,230,461 $ 427,374 $ 1,657,835 $ 1,754,158
FUND BALANCES
Restricted 1,776 - 1,776 1,774
Total Liabilities and
Fund Balances $ 1,232,237 $ 427,374 $ 1,659,611 $ 1,755,932 Totals
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The accompanying notes are an integral part of the financial statements. 5 CITY OF MODESTO
TRANSPORTATION DEVELOPMENT ACT FUNDS
STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES
LOCAL TRANSPORTATION SPECIAL REVENUE FUNDS
FOR THE YEAR ENDED JUNE 30, 2021
(with comparative totals for the year ended June 30, 2020) NonMotorizedStreets
and Roads 2021 2020
REVENUES
Intergovernmental:
Local transportation funds $ 286,083 $ - $ 286,083 $ 103,400 Interest 11,898 - 11,898 5,029
Change in fair value of investments (12,094) - (12,094) 23,446 Other 14 - 14 -
Total Revenues 285,901 - 285,901 131,875
EXPENDITURES
Maintenance and supplies 330 - 330 -
Total Expenditures 330 - 330 -
Excess (Deficiency) of Revenues
Over (Under) Expenditures 285,571 - 285,571 131,875
OTHER FINANCING SOURCES (USES)
Transfers:
Out to other funds of the City (285,569) - (285,569) (131,875) Total Other Financing
Sources (Uses) (285,569) - (285,569) (131,875)
Changes in fund balances 2 - 2 -
Fund Balances, Beginning of Year 1,774 - 1,774 1,774
Fund Balances, End of Year $ 1,776 -$ $ 1,776 $ 1,774
Totals
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The accompanying notes are an integral part of the financial statements. 6 CITY OF MODESTO
TRANSPORTATION DEVELOPMENT ACT FUNDS
STATEMENT OF NET POSITION – BUS ENTERPRISE FUND
JUNE 30, 2021
(with comparative totals as of June 30, 2020)
2021 2020
ASSETS
Current Assets:
Cash and investments $ 8,265,827 $ 13,505,464
Accounts receivable 304,695 107,419
Interest receivable 19,897 39,206
Prepaid expenses 5,582 104,492
Due from other governments 9,540,773 2,573,108
Total Current Assets 18,136,774 16,329,689
Noncurrent Assets:
Capital assets:
Land and construction in progress 6,852,312 4,912,255
Other capital assets, net 33,787,902 33,977,417
Total Noncurrent Assets 40,640,214 38,889,672
Total Assets 58,776,988 55,219,361
DEFERRED OUTFLOWS OF RESOURCES
Deferred OPEB 108,362 53,337
Deferred pensions 475,530 538,873
Total Deferred Outflows of Resources 583,892 592,210
LIABILITIES
Current Liabilities:
Accounts payable 3,400,202 2,261,012
Accrued salaries and benefits 88,159 52,308
Advances from other funds 471,416
Unearned revenue other 45,361 6,757
Unearned revenue PTMISEA - 26,690
Unearned revenue CALEMA 117,245 237,607
Unearned revenue state of good repair - 38,136
Unearned revenue capital transit 6,486,649 9,874,665
Unearned revenue LTF/LCTOP 5,621,643 1,862,729
Total Current Liabilities 16,230,675 14,359,904
Noncurrent Liabilities:
Net pension liability 3,861,752 3,423,069
Net OPEB liability 466,582 411,717
Total Noncurrent Liabilities 4,328,334 3,834,786
Total Liabilities 20,559,009 18,194,690
DEFERRED INFLOWS OF RESOURCES
Deferred OPEB 24,443 32,234
Deferred pensions 13,869 61,833
Total Deferred Inflows of Resources 38,312 94,067
NET POSITION
Net investment in capital assets 40,640,214 38,889,672
Unrestricted (1,876,655) (1,366,858)
Total Net Position $ 38,763,559 $ 37,522,814
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The accompanying notes are an integral part of the financial statements. 7 CITY OF MODESTO
TRANSPORTATION DEVELOPMENT ACT FUNDS
STATEMENT OF REVENUES, EXPENSES, AND
CHANGES IN FUND NET POSITION – BUS ENTERPRISE FUND
FOR THE YEAR ENDED JUNE 30, 2021
(with comparative totals for the year ended June 30, 2020) 2021 2020
OPERATING REVENUES
Charges for services $ 1,118,636 $ 2,017,339
Miscellaneous 505,531 320,720
Total Operating Revenues 1,624,167 2,338,059
OPERATING EXPENSES
Contractual services 17,392,463 13,137,802
Depreciation 3,479,732 3,538,597
Maintenance and supplies 3,389,110 3,087,697
Salaries and wages 1,665,914 1,667,940
Administrative services 1,850,804 1,715,645
Employee benefits 787,615 745,949
Allocated indirect administrative costs 375,632 348,309 Utilities 197,821 208,392
Insurance 43,573 40,618
Other 137,652 131,579
Total Operating Expenses 29,320,316 24,622,528
Operating Loss (27,696,149) (22,284,469)
NONOPERATING REVENUES (EXPENSES)
Intergovernmental:
Local transportation funds 9,152,886 6,561,031
State transit assistance - 6,417,706
Federal transit administration 15,974,448 3,694,503
Proposition 1B 251,011 157,968
CMAQ grants 49,768 34,050
Low carbon transit operations program 323,940 872,582
Other 112,283 426,461
Gain (loss) on disposition of capital assets (258,570) 3,088 Interest income (loss) (2,421) (3,675)
Rental income 135,914 141,781
Change in fair value of investments (103,414) 201,475
Total Nonoperating Revenues (Expenses) 25,635,845 18,506,970 Income (Loss) Before Capital Contributions and Transfers (2,060,304) (3,777,499) Capital contributions:
Local transportation funds 2,462,281 254,425
Federal transit administration 2,979,321 258,985
Low carbon transit operations program (62,756) 76
Transfers in from other funds of the City 29,516 1,153,727 Transfers out to other funds of the City (2,107,313) (723,919) Change in Net Position 1,240,745 (2,834,205)
Net Position, Beginning of Year 37,522,814 40,357,019
Net Position, End of Year $ 38,763,559 $ 37,522,814
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The accompanying notes are an integral part of the financial statements. 8 CITY OF MODESTO
TRANSPORTATION DEVELOPMENT ACT FUNDS
STATEMENT OF CASH FLOWS – BUS ENTERPRISE FUND
FOR THE YEAR ENDED JUNE 30, 2021
(with comparative totals for the year ended June 30, 2020) 2021 2020
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from customers and users $ 1,426,891 $ 2,287,050 Payments to suppliers (22,936,570) (18,644,637)
Payments to employees (1,183,952) (1,311,807)
Net Cash Used in Operating Activities (22,693,631) (17,669,394)
CASH FLOWS FROM NONCAPITAL
FINANCING ACTIVITIES
Cash receipts/(payments) from grants:
Local transportation funds 12,911,800 4,021,538
State transit assistance - 6,417,706
Federal transit administration 12,586,432 5,976,676
CMAQ grant for rideshare program 49,768 34,050
Low carbon transit operations program 323,940 872,582
Other (6,750,955) 5,782,205
Transfers in from other funds of the City 29,516 1,153,727 Transfers out to other funds of the City (2,107,313) (723,919) Advances from other funds of the City 471,416 -
Net Cash Provided by Noncapital Financing Activities 17,514,604 23,534,565
CASH FLOWS FROM CAPITAL AND RELATED
FINANCING ACTIVITIES
Acquisition and construction of capital assets (5,488,844) (777,536) Proceeds from the sale of property and equipment - 6,175 Capital contributions:
Local transportation funds 2,462,281 254,425
Federal transit administration 2,979,321 258,985
Low carbon transit operations program (62,756) 76
Net Cash Used in Capital and Related
Financing Activities (109,998) (257,875)
CASH FLOWS FROM INVESTING ACTIVITIES
Investment earnings (loss) (86,526) 183,212
Rental income received 135,914 141,781
Net Cash Provided by Investing Activities 49,388 324,993 Change in cash and investments (5,239,637) 5,932,289
Cash and Investments, Beginning of Year 13,505,464 7,573,175 Cash and Investments, End of Year $ 8,265,827 $ 13,505,464 #1..
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The accompanying notes are an integral part of the financial statements. 9 CITY OF MODESTO
TRANSPORTATION DEVELOPMENT ACT FUNDS
STATEMENT OF CASH FLOWS – BUS ENTERPRISE FUND (continued) FOR THE YEAR ENDED JUNE 30, 2021
(with comparative totals for the year ended June 30, 2020) 2021 2020
RECONCILIATION OF OPERATING LOSS TO NET
CASH USED IN OPERATING ACTIVITIES:
Operating loss $ (27,696,149) $ (22,284,469)
Adjustments to reconcile operating loss to net cash
used in operating activities:
Depreciation 3,479,732 3,538,597
Changes in assets and liabilities:
Accounts receivable (197,276) (51,009)
Prepaid expenses 98,910 158,315
Accounts payable 1,139,190 613,039
Accrued salaries and benefits 35,851 15,954
Net OPEB liability and related deferred
outflows/inflows of resources (62,816) (14,607)
Net pension liability and related
deferred outflows/inflows of resources 508,927 354,786
Net Cash Used in Operating Activities $ (22,693,631) $ (17,669,394) #1..
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CITY OF MODESTO
TRANSPORTATION DEVELOPMENT ACT FUNDS
NOTES TO THE FINANCIAL STATEMENTS
10 NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Reporting Entity: The City of Modesto, California (the City) accounts for California Transportation Development Act (TDA) monies in the Local Transportation Special Revenue Funds and the Bus Enterprise Fund (TDA Funds). These funds are a part of the City and not a separate legal entity. As such, these financial statements only present the fund financial statements and not the government-wide information or financial statements. The Local Transportation Special Revenue Funds are combined and presented as a special revenue fund in the City’s Comprehensive Annual Financial Report (ACFR) along with the Bus Enterprise Fund. These financial statements are intended to reflect the financial position, changes in financial position, and cash flows, where applicable, of the TDA Funds in accordance with accounting principles generally accepted in the United States of America.
Basis of Presentation, Basis of Accounting, and Measurement Focus: The Local Transportation Special Revenue Funds are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible with the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the City considers revenues to be available if they are collected within 180 days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred, as under the accrual basis of accounting. Intergovernmental and interest revenues are considered to be susceptible to accrual and so have been recognized as revenues of the current fiscal period. Under Governmental Accounting Standards Board (GASB) Statement No. 34, budgetary comparison information is required to be presented for each major special revenue fund with a legally adopted budget. The City is not legally required to adopt a budget for the TDA Funds. Therefore, budget comparison information is not included in these financial statements.
The Bus Enterprise Fund is reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows.
The financial statements include certain prior-year summarized comparative information in total but not at the level of detail required for a presentation in accordance with generally accepted accounting principles. Accordingly, such information should be read in conjunction with the TDA Funds financial statements for the year ended June 30, 2020, from which the summarized information was derived.
Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met.
The City reports the following Local Transportation Special Revenue Funds:
The Non-Motorized Fund accounts for monies received and spent under Article 3, Section 99234 of the TDA.
The Streets and Roads Fund accounts for monies received and to be spent under Article 8, Section 99400(a) of the TDA.
The City reports the following Enterprise Fund:
The Bus Enterprise Fund accounts for monies received and spent under Article 4, Section 99250 (public transit) of the TDA. The Bus Enterprise Fund also receives federal funds through the Federal Transit Administration, and other state and local grants, in addition to operating revenues.
Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund’s principal ongoing operations. The principal operating revenues of the enterprise fund are charges to customers for bus fares, sales, and services. Operating expenses for the enterprise fund includes the cost of sales and services, depreciation on capital assets, and administrative expenses. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. #1..
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CITY OF MODESTO
TRANSPORTATION DEVELOPMENT ACT FUNDS
NOTES TO THE FINANCIAL STATEMENTS (continued)
11 NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Management’s Use of Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
Due from Other Governments/Unearned Revenue: Grants, entitlements, or shared revenues are recorded as receivables and revenues in the special revenue funds when they are received or susceptible to accrual. Grants awarded for enterprise funds are recorded as receivables and nonoperating revenues when they are earned.
Unearned revenue consists of grant funds received in excess of qualified expenditures. Grant revenue is recognized in the period of qualified expenditure/expenses.
Capital Assets: Capital assets are defined by the City as assets with an initial individual cost of more than $5,000 and estimated useful life in excess of two years. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated assets are recorded at estimated fair value at the date of donation.
Capital projects funded by the Local Transportation Special Revenue Funds, including infrastructure (roads, curbs, gutters, streets, bridges, sidewalks, drainage systems, lighting systems, right-of-ways, and land related to such assets), are recorded as transfers out to other City funds and capital outlay expenditures of the Local Transportation Special Revenue Funds. These expenditures are capitalized in the City’s government-wide financial statements as the related capital assets become the property of the City and are maintained by the City.
In the Bus Enterprise Fund, buildings and equipment are depreciated using the straight-line method over the estimated useful lives of the assets, which are 30 years for buildings, 20 years for improvements, 12 years for buses, 10 years for furnishings and equipment, and 2 to 10 years for vehicles. Depreciation is included in operating expenses.
Fund Equity: In the fund financial statements, governmental funds report fund balance as nonspendable, restricted, committed, assigned, or unassigned based primarily on the extent to which the City is bound to honor constraints on how specific amounts can be spent.
• Nonspendable – Amounts that are not in spendable form (such as inventory) or are required, either legally or contractually, to be maintained intact.
• Restricted – Amounts with constraints placed on their use that are either (a) externally imposed by creditors, grantors, contributors, or laws or regulations of other governments or (b) imposed by law through constitutional or enabling legislation.
• Committed – Amounts constrained to specific purposes by the City, using the highest level of decisionmaking authority (City Council). To be reported as committed, amounts cannot be used for any other purpose unless the City takes the same highest level action to remove or change the constraint. The underlying action that imposed the limitation needs to occur no later than the close of the reporting period. • Assigned – Amounts the City intends to use for a specific purpose. Intent can be expressed by the City at either the highest level of decision-making authority or by an official or body to which the City delegates the authority.
• Unassigned – For the TDA Special Revenue Funds, the unassigned classification is used only if expenditures incurred for specific purposes exceed the amounts restricted, committed, or assigned to those purposes. #1..
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CITY OF MODESTO
TRANSPORTATION DEVELOPMENT ACT FUNDS
NOTES TO THE FINANCIAL STATEMENTS (continued)
12 NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Fund Equity (continued): The City establishes and modifies or rescinds fund balance commitments by passage of an ordinance or policy. This is typically done through adoption or amendment of the budget. A fund balance commitment is further indicated in the budget as a designation or commitment of the fund, such as approved construction contracts. Assigned fund balance is established by the City through adoption or amendment of the budget or future year budget plan as intended for a specific purpose.
In circumstances where an expenditure is incurred for which restricted, committed, assigned, or unassigned funds are available for use, it is the City’s policy to use restricted resources first, followed by the committed, assigned, and unassigned resources as they are needed.
Net Position: Net position represents the residual interest in the City’s assets after liabilities are deducted. In accordance with GASB Statement No. 63, the fund equity section on the Statement of Net Position was combined to report total net position and present it in three broad components:
• Net investment in capital assets – Amount consists of capital assets, including infrastructure, net of accumulated depreciation and outstanding principal balances of debt attributable to the acquisition, construction, or improvement of those assets.
• Restricted – Amount consists of net position restricted by external creditors, grantors, contributors, or laws or regulations of other governments and restrictions imposed by law through constitutional provisions or enabled legislature.
• Unrestricted – Amount consists of all net position that does not meet the definition “net investment in capital assets” or “restricted” net position.
When both restricted and unrestricted net position are available, restricted resources are depleted first before unrestricted resources are used.
Pensions: For purposes of measuring the net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the Miscellaneous Plan (Plan) and additions to/deductions from the Plan’s fiduciary net position have been determined on the same basis as they are reported by the CalPERS Financial Office. For this purpose, benefit payments (including refunds of employee contributions) are recognized when currently due and payable in accordance with the benefit terms. Investments of the Plan are reported at fair value.
GASB Statement No. 68 requires that the reported results must pertain to liability and asset information within certain defined timeframes. For this report, the following timeframes are used:
Valuation Date: June 30, 2019
Measurement Date: June 30, 2020
Measurement Period: July 1, 2019 to June 30, 2020
Other Postemployment Benefits (OPEB): For purposes of measuring the net OPEB liability, deferred outflows of resources and deferred inflows of resources related to OPEB, and OPEB expense, information about the net position of the City’s plan (OPEB Plan) and additions to/deductions from the OPEB Plan’s net position have been determined on the same measurement basis. For this purpose, benefit payments are recognized when currently due and payable in accordance with the benefit terms. Investments of the Plan are reported at fair value.
GASB Statement No. 75 requires that the reported results must pertain to liability and asset information within certain defined timeframes. For this report, the following timeframes are used:
Valuation Date: June 30, 2019
Measurement Date: June 30, 2020
Measurement Period: July 1, 2019 to June 30, 2020
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- 595 -
CITY OF MODESTO
TRANSPORTATION DEVELOPMENT ACT FUNDS
NOTES TO THE FINANCIAL STATEMENTS (continued)
13 NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Governmental Accounting Standards Update: During the year ending June 30, 2021, the City implemented the following standards:
GASB Statement No. 84 – Fiduciary Activities. The requirements of this statement are effective for reporting periods beginning after December 15, 2018. Subsequent to issuance, GASB Statement No. 95 postponed the requirements of this statement to reporting periods beginning after December 15, 2019.
GASB Statement No. 89 – Accounting for Interest Cost Incurred before the End of a Construction Period. The requirements of this statement are effective for reporting periods beginning after December 15, 2019. Subsequent to issuance, GASB Statement No. 95 postponed the requirements of this statement to reporting periods beginning after December 15, 2020.
GASB Statement No. 90 – Majority Equity Interests- an amendment of GASB Statements No. 14 and No 61. The requirements of this statement are effective for reporting periods beginning after December 15, 2018. Subsequent to issuance, GASB Statement No. 95 postponed the requirements of this statement to reporting periods beginning after December 15, 2019.
Released GASB Statements to be implemented in future financial statements are as follows:
GASB Statement No. 87 – Leases. The requirements of this statement are effective for reporting periods beginning after December 15, 2019. Subsequent to issuance, GASB Statement No. 95 postponed the requirements of this statement to reporting periods beginning after June 15, 2021.
GASB Statement No. 91 – Conduit Debt Obligations. The requirements of this statement are effective for reporting periods beginning after December 15, 2020. Subsequent to issuance, GASB Statement No. 95 postponed the requirements of this statement to reporting periods beginning after December 15, 2021.
GASB Statement No. 92 – Omnibus 2020. The requirements of this statement are effective for reporting periods beginning after June 15, 2020. Subsequent to issuance, GASB Statement No. 95 postponed the requirements of this statement to June 15, 2021.
GASB Statement No. 93 – Replacement of Interbank Offered Rates. The requirements of this statement are effective for reporting periods beginning after June 15, 2021. Subsequent to issuance, GASB Statement No. 95 postponed the certain requirements of this statement to reporting periods beginning after June 15, 2022.
GASB Statement No. 94 – Public-Private and Public-Public Partnerships and Availability Payment Arrangements. The requirements of this statement are effective for reporting periods beginning after June 15, 2022.
GASB Statement No. 96 – Subscription-Based Information Technology Arrangements. The requirements of this statement are effective for reporting periods beginning after June 15, 2022.
GASB Statement No. 97 – Certain Component Unit Criteria, and Accounting and Financial Reporting for Internal Revenue Code Section 457 Deferred Compensation Plans. The requirements of this statement are effective for reporting periods beginning after June 15, 2021.
Subsequent Events: In compliance with accounting standards, management has evaluated events that have occurred after year-end to determine if these events are required to be disclosed in the financial statements.
Management has determined that the event described in Note 12 requires disclosure in accordance with accounting standards. These subsequent events have been evaluated through November 24, 2021, which is the date the financial statements were available to be issued.
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- 596 -
CITY OF MODESTO
TRANSPORTATION DEVELOPMENT ACT FUNDS
NOTES TO THE FINANCIAL STATEMENTS (continued)
14 NOTE 2 – CASH AND INVESTMENTS
Cash and investments of the Transportation Development Act Funds are pooled with other City of Modesto funds.
Interest earned on pooled cash and investments is credited to each participant in the pool based on each participant’s average monthly cash balance. Credit quality ratings are not available for the Transportation Development Act Funds’ investments as all cash is invested as part of the common cash and investment pool of the City of Modesto. Cash in the City Pool is considered unclassified as to credit risk because it is not evidenced by securities that exist in physical or book entry form. The Transportation Development Act Funds do not have any deposits with financial institutions as of June 30, 2021.
Cash and investments as of June 30, 2021 are classified in the accompanying financial statements as follows:
Balance Sheet- Local Transportation
Special Revenue Funds:
Cash and investments $ 1,467,398
Statement of Net Position- Bus Enterprise Fund:
Cash and investments 8,265,827
Total cash and investments $ 9,733,225
Summary of Deposits: Cash and investments as of June 30, 2021 consist of the following:
Deposits with City of Modesto
Cash and Investment Pool: $ 9,733,225
Total cash and investments $ 9,733,225
Detailed information concerning the City of Modesto’s pooled cash and investments, including information regarding the fair value of investments, may be found in the City of Modesto’s Annual Comprehensive Financial Report. As of June 30, 2021, the fair value of the TDA Funds position in the pool is the same as the value of its pool shares. #1..
- 597 -
CITY OF MODESTO
TRANSPORTATION DEVELOPMENT ACT FUNDS
NOTES TO THE FINANCIAL STATEMENTS (continued)
15 NOTE 3 – CAPITAL ASSETS
Capital asset activity for the Bus Enterprise Fund for the year ended June 30, 2021, was as follows:
Beginning Additions/ Deletions/ Ending
Balance Transfers In Transfers Out Balance
Capital Assets, Not
Being Depreciated:
Land $ 4,060,454 $ - $ - $ 4,060,454
Construction in Progress 851,801 2,317,603 (377,546) 2,791,858 Total Capital Assets,
Not Being Depreciated 4,912,255 2,317,603 (377,546) 6,852,312 Capital Assets, Being Depreciated:
Buildings 23,803,489 - - 23,803,489
Improvements 3,977,602 675,934 - 4,653,536
Furnishings and equipment 2,800,884 - (8,055) 2,792,829 Vehicles 197,556 - (12,785) 184,771
Buses and fareboxes 34,290,246 2,872,852 (524,631) 36,638,467 Total Capital Assets,
Being Depreciated 65,069,777 3,548,786 (545,471) 68,073,092 Less Accumulated Depreciation for:
Buildings (9,346,203) (778,880) - (10,125,083)
Improvements (2,325,606) (155,573) - (2,481,179)
Furnishings and equipment (1,387,118) (241,784) 7,249 (1,621,653) Vehicles (169,424) (6,820) 12,786 (163,458)
Buses and fareboxes (17,864,009) (2,296,675) 266,867 (19,893,817) Total Accumulated
Depreciation (31,092,360) (3,479,732) 286,902 (34,285,190) Total Capital Assets, Being
Depreciated, Net 33,977,417 69,054 (258,569) 33,787,902 Total Capital Assets, Net $ 38,889,672 $ 2,386,657 $ (636,115) $ 40,640,214 Depreciation expense for the year ended June 30, 2021 was $3,479,732.
NOTE 4 – COMPLIANCE REQUIREMENTS OF LOCAL TRANSPORTATION FUNDS The Bus Enterprise Fund is subject to TDA provisions requiring the calculation and adherence of fare and local support ratios for TDA transit funding. Effective July 1, 2016, the Stanislaus Council of Governments (StanCOG), the transportation planning agency for Stanislaus County, approved a split system farebox recovery ratio of 20% for Fixed Route and 10% for Demand Response. Due to the COVID-19 pandemic, per Transportation Bill AB-90, StanCOG has waived the Farebox Recovery Ratio requirements for the year ended June 30, 2021. The City’s Bus Enterprise Fund separated the fixed route and demand response calculations for 2021 to show compliance with the required farebox recovery ratios.
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- 598 -
CITY OF MODESTO
TRANSPORTATION DEVELOPMENT ACT FUNDS
NOTES TO THE FINANCIAL STATEMENTS (continued)
16 NOTE 4 – COMPLIANCE REQUIREMENTS OF LOCAL TRANSPORTATION FUNDS (continued) The Bus Enterprise Fund’s fare ratio of operating revenues to operating expenses for the year ended June 30, 2021, as calculated below, indicates that the City’s farebox recovery ratios are below StanCOG’s requirements. However, the City is considered in compliance with TDA provisions as the requirements were waived for the year ended June 30, 2021.
Demand
Fixed Route Response
Charges for services $ 1,305,387 $ 152,479
Local funds supplementation 304,999 -
Advertising revenue 191,855 -
Fare revenues $ 1,802,241 $ 152,479
Operating expenses $ 26,106,198 $ 3,214,118
Less expenses not related to fare generated activities:
Depreciation (3,479,732) -
Transfer in from other City funds (3,439) -
Grant and rent-funded activities (2,949,049) -
Applicable operating expenses $ 19,673,978 $ 3,214,118
Fare ratio 9.16% 4.74%
NOTE 5 – STATE TRANSIT ASSISTANCE PROGRAM ALLOCATIONS
The City receives State Transit Assistance Program allocations from the County of Stanislaus State Transit Assistance Fund. State Transit Assistance funds are to be used for transit operations. Funds shall not be allocated for operating purposes pursuant to Sections 99313 and 99314 to an operator unless the operator meets efficiency standards as described in Section 99314.6. Although the City’s current operating cost per service hour is more than the prior year’s cost per hour taking into account the Consumer Price Index (CPI), the City is still considered to be in compliance with Section 99314.6 as the requirements were waived for the year ended June 30, 2021. 2019/20
2020/21 2019/20 CPI ADJ
2.300%
Total Operating Cost $ 22,445,647 $ 18,626,908
Total Vehicle Service Hours 197,082 187,048
Operating Cost per
Vehicle Service Hour $ 113.89 $ 99.58 $ 101.87
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- 599 -
CITY OF MODESTO
TRANSPORTATION DEVELOPMENT ACT FUNDS
NOTES TO THE FINANCIAL STATEMENTS (continued)
17 NOTE 5 – STATE TRANSIT ASSISTANCE PROGRAM ALLOCATIONS (continued) Although the City’s average total operating cost per vehicle service hour in the three years preceding the current 2021 fiscal year multiplied by the CPI for the same period is higher as shown below, the City is still considered to be in compliance, as the requirements were waived for the year ended June 30, 2021. 2020/21 2019/20 2018/19 2017/18 CPI 3 Year Average
Preceding 3 Year
Average
Adjusted by CPI
1.977%
Total Operating Cost $ 22,445,647 $ 18,626,908 $ 17,576,031 $ 16,157,380 $ 19,549,529 $ 17,453,440 Total Vehicle Service Hours 197,082 187,048 168,311 161,231 184,147 172,197 Operating Cost per
Vehicle Service Hour $ 113.89 $ 99.58 $ 104.43 $ 100.21 $ 106.16 $ 103.36 NOTE 6 – PROPOSITION 1B: PUBLIC TRANSPORTATION MODERNIZATION, IMPROVEMENT, AND SERVICE
ENHANCEMENT ACCOUNT (PTMISEA)
In November 2006, California voters passed a bond measure enacting the Highway Safety, Traffic Reduction, Air Quality, and Port Security Bond Act of 2006. Of the $19.925 billion of State general obligation bonds authorized, $4 billion was set aside by the State as instructed by the statute as the Public Transportation Modernization, Improvement, and Service Enhancement Account (PTMISEA). These funds are available to the California Department of Transportation for intercity rail projects and to transit operators in California for rehabilitation, safety, or modernization improvements; capital service enhancements or expansions; new capital projects; bus rapid transit improvements; or for rolling stock procurement, rehabilitation, or replacement.
In fiscal year 2021, the City didn’t receive any additional funding from the State of California Department of Transportation passed through StanCOG. The City spent $26,993 in various projects during the year and earned an additional $303 in interest, leaving $0 of unspent PTMISEA funds as of June 30, 2021.
Project Name
Beginning
Unearned
Revenue Interest
New
Receipts Expended
Ending
Unearned
Revenue
Security $ 26,690 $ 303 $ - $ (26,993) $ -
Total $ 26,690 $ 303 $ - $ (26,993) $ -
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- 600 -
CITY OF MODESTO
TRANSPORTATION DEVELOPMENT ACT FUNDS
NOTES TO THE FINANCIAL STATEMENTS (continued)
18 NOTE 7 – CALIFORNIA OFFICE OF EMERGENCY SERVICES GRANT (CALEMA) Unearned revenue for the CALEMA Funds for the year ended June 30, 2021, was as follows:
Project Name
Beginning
Unearned
Revenue Interest
New
Receipts Expended
Ending
Unearned
Revenue
On Board Security Enhancements $ 121,877 $ 1,044 $ - $(122,921) $ - Transit Center Video
Surveillance System 115,730 1,515 - - 117,245
Total $ 237,607 $ 2,559 $ - $(122,921) $ 117,245
NOTE 8 – CAPITAL TRANSIT AND LOCAL TRANSPORTATION FUNDS Unearned revenue for the TDA Funds for the year ended June 30, 2021, was as follows:
Non-Motorized Streets and Roads Total
Unearned revenue, beginning of year $ 1,326,784 $ 427,374 $ 1,754,158 TDA funds allocated 201,657 - 201,657
TDA funds earned (297,980) - (297,980)
Unearned revenue, end of year $ 1,230,461 $ 427,374 $ 1,657,835 Local Transportation Special Revenue Funds
LTF/LCTOP Capital Transit Total
Unearned revenue, beginning of year $ 1,862,729 $ 9,874,665 $ 11,737,394 TDA funds allocated 12,326,866 3,887,014 16,213,880
TDA funds earned (8,567,952) (7,275,030) (15,842,982)
Unearned revenue, end of year $ 5,621,643 $ 6,486,649 $ 12,108,292 Bus Enterprise Fund
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- 601 -
CITY OF MODESTO
TRANSPORTATION DEVELOPMENT ACT FUNDS
NOTES TO THE FINANCIAL STATEMENTS (continued)
19 NOTE 9 – PENSION PLAN
General Information about the Pension Plan
Plan Description: All of the Bus Fund qualified employees are eligible to participate in the City’s Miscellaneous Pension Plan (Plan), an agent multi-employer defined benefit pension plan administered by the California Public Employees’ Retirement System (CalPERS). Departments and funds of the City, including the Bus Fund, are in a costsharing arrangement in which all risks and costs are shared proportionately. CalPERS issues a separate annual comprehensive financial report. Copies of the annual audited financial statements are publicly available reports that can be obtained at CalPERS’ website at www.calpers.ca.gov under Forms and Publications or may be obtained from the CalPERS Executive Office, 400 Q Street, Sacramento, California 95811.
The California Legislature passed and the Governor signed the “Public Employees’ Pension Reform Act of 2013” (PEPRA) on September 12, 2012. PEPRA contained a number of provisions intended to reduce future pension obligations. PEPRA primarily affects new pension plan members who are enrolled for the first time after December 2012. Benefit provisions under the Plan and other requirements are established by State statute and City resolution.
Benefits Provided: The benefits for the Plan are based on members’ years of services, age, final compensation, and benefit formula. Benefits are provided for disability, death, and survivors of eligible members or beneficiaries.
Members come fully vested in their retirement benefits earned to date after five years of credited service.
The Plan’s provisions and benefits in effect at June 30, 2021 are summarized as follows:
Prior to
January 17, 2012
January 17, 2012 to
December 31, 2012
On or After
January 1, 2013
Benefit formula 2% @ 55 2% @ 60 2% @ 62
Benefit vesting schedule 5 years service 5 years service 5 years service Benefit payments monthly for life monthly for life monthly for life Retirement age 50 to 67 50 to 67 52 to 67
Monthly benefits, as a % of
eligible compensation 1.426 to 2.418% 1.092 to 2.418% 1.0 to 2.5% Contributions: Section 20814(c) of the California Public Employees Retirement Law (PERL) requires that the employer contribution rates for all public employers be determined on an annual basis by the actuary and shall be effective on the July 1 following notice of a change in the rate. The total plan contributions are determined through the CalPERS’ annual actuarial valuation process. The actuarially determined rate is the estimated amount necessary to finance the costs of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. The City is required to contribute the difference between the actuarially determined rate and the contribution rate of employees.
For the measurement period ended June 30, 2020 (the measurement date) for the Plan, the average active employee contribution rate was 7.00% of annual pay and the employer’s contribution rate was 8.32% of annual payroll.
Employer contribution rates may change if plan contracts are amended.
It is the responsibility of the City to make necessary accounting adjustments to reflect the impact due to any employer-paid member contributions or situations where members are paying a portion of the employer contribution.
For the year ended June 30, 2021, the employer contributions recognized as a deferred outflow of resources was $346,108.
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- 602 -
CITY OF MODESTO
TRANSPORTATION DEVELOPMENT ACT FUNDS
NOTES TO THE FINANCIAL STATEMENTS (continued)
20 NOTE 9 – PENSION PLAN (continued)
Pension Liabilities, Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions
As of June 30, 2021, the Bus Fund reported a liability of $3,861,752 for its proportionate share of the net pension liability. The net pension liability at June 30, 2021, was measured as of June 30, 2020, using an annual actuarial valuation as of June 30, 2019, rolled forward to June 30, 2020 using standard update procedures. The Bus Fund’s proportion of the net pension liability was based on its contributions to the Plan relative to all contributions to the Plan. At June 30, 2021, the Bus Fund’s proportion was 2.78969%.
For the year ended June 30, 2021, the Bus Fund recognized pension expenses of $591,717. At June 30, 2021, the Bus Fund reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources:
June 30, 2021
Deferred Outflows
of Resources
Deferred Inflows
of Resources
Pension contribution subsequent to measurement date $ 346,108 $ - Changes of assumptions - (13,073)
Differences between expected and actual experiences 60,108 (796) Net difference between projected and actual
earnings on pension plan investments 69,314 -
Totals $ 475,530 $ (13,869)
The pension contributions made subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended June 30, 2021. Other amounts reported as deferred outflows and deferred inflows of resources related to pensions will be recognized in future pension expense as follows:
Year Ending
June 30
2022 $ (16,518)
2023 41,289
2024 49,976
2025 40,806
Total $ 115,553
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- 603 -
CITY OF MODESTO
TRANSPORTATION DEVELOPMENT ACT FUNDS
NOTES TO THE FINANCIAL STATEMENTS (continued)
21 NOTE 9 – PENSION PLAN (continued)
Pension Liabilities, Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions (continued)
Actuarial Assumptions: The total pension liabilities in the June 30, 2019 actuarial valuations, which were rolled forward to June 30, 2020, were determined using the following actuarial method and assumptions:
Valuation Date: June 30, 2019
Measurement Date: June 30, 2020
Actuarial Cost Method: Entry Age Normal Cost Method
Actuarial Assumptions:
Discount Rate- 7.15%
Inflation- 2.625%
Salary Increases- Varies by entry age and service
Investment Rate of Return- 7.25%
Mortality Rate Table1- Derived using CalPERS’ Membership Data for all Funds
Post Retirement Benefit- Up to 2.75%
(1) The mortality table used was developed on CalPERS specific data. The table includes 20 years of mortality improvements using Society of Actuaries Scale BB. For more details on this table, please refer to the 2017 experience study report.
All other actuarial assumptions used in the June 30, 2019 valuation were based on the results of an actuarial experience study for the period from 1997 to 2015, including updates to salary increase, mortality and retirement rates. The Experience Study report can be obtained at the CalPERS website under Forms and Publications.
Discount Rate: The discount rate used to measure the total pension liability at June 30, 2021 was 7.15 percent. To determine whether the municipal bond rate should be used in the calculation of a discount rate for the Plan, CalPERS stress tested plans that would most likely result in a discount rate that would be different from the actuarially assumed discount rate. Based on the testing, none of the tested plans run out of assets. Therefore, the discount rate is adequate and the use of municipal bond rate calculation is not necessary. The long-term expected discount rate of 7.15 percent is applied to all plans in the Public Employees Retirement Fund for the June 30, 2020 measurement date. The stress test results are presented in a detailed report called “GASB Crossover Testing Report” that can be obtained at the CalPERS’ website under the GASB 68 section.
The long-term expected rate of return on pension plan investments was determined using a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class.
In determining the long-term expected rate of return, CalPERS staff took into account both short-term and longterm market return expectations as well as the expected pension fund cash flows. Such cash flows were developed assuming that both members and employers will make their required contributions on time and as scheduled in all future years. Using historical returns of all the funds’ asset classes, expected compound (geometric) returns were calculated over the short-term (first 10 years) and the long-term (11- 60 years) using a building-block approach.
Using the expected nominal returns for both short-term and long-term, the present value of benefits was calculated for each fund.
The expected rate of return was set by calculating the single equivalent expected return that arrived at the same present value of benefits for cash flows as the one calculated using both short-term and long-term returns. The expected rate of return was then set equivalent to the single equivalent rate calculated above and rounded down to the nearest one-quarter of one percent.
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- 604 -
CITY OF MODESTO
TRANSPORTATION DEVELOPMENT ACT FUNDS
NOTES TO THE FINANCIAL STATEMENTS (continued)
22 NOTE 9 – PENSION PLAN (continued)
Pension Liabilities, Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions (continued)
Discount Rate (continued): The table below reflects long-term expected real rate of return by asset class. The rate of return was calculated using the capital market assumptions applied to determine the discount rate and asset allocation. These geometric rates of return are net of administrative expenses.
The target allocation for the June 30, 2020 measurement date was as follows:
Asset Class
New Strategic
Allocation
Real Return
Years 1-10*
Real Return
Years 11+**
Global Equity 50.00% 4.80% 5.98%
Global Fixed Income 28.00 1.00 2.62
Inflation Sensitive 0.00 0.77 1.81
Private Equity 8.00 6.30 7.23
Real Estate 13.00 3.78 4.93
Liquidity 1.00 0.00 (0.92)
Total 100.00%
* An expected inflation of 2.0% used for this period
** An expected inflation of 2.92% used for this period
Sensitivity of the Bus Fund’s Proportionate Share of the Net Pension liability to Changes in the Discount Rate: The following presents the net pension liability of the Plan as of the June 30, 2020 measurement date, calculated using the discount rate of 7.15 percent, as well as what the net pension liability would be if it were calculated using a discount rate that is 1 percentage-point lower (6.15 percent) or 1 percentage-point higher (8.15 percent) than the current rate:
Current
Discount Rate Discount Rate Discount Rate
-1% (6.15) 7.15% +1% (8.15)
Bus Fund's Proportionate Share
of Plan's Net Pension Liability $ 5,589,515 $ 3,861,752 $ 2,424,580 Pension Plan Fiduciary Net Position: Detailed information about the pension plan’s fiduciary net position is available in the separately issued CalPERS financial report. Copies of which may be obtained from the CalPERS Executive Offices, Lincoln Plaza East, 400 Q Street, Sacramento, California 95811. #1..
- 605 -
CITY OF MODESTO
TRANSPORTATION DEVELOPMENT ACT FUNDS
NOTES TO THE FINANCIAL STATEMENTS (continued)
23 NOTE 10 – OTHER POSTEMPLOYMENT BENEFITS (OPEB)
Plan Description: In addition to the pension benefits described above in Note 9, the City participates in an agent multiple-employer plan which provides health care benefits to employees who retire from the City based on certain criteria related to their hired and retirement date, under contractual agreements with all employee groups. All fulltime employees hired before January 1, 2011, except firefighters who receive a cash payout, are eligible to set aside a percentage of accumulated sick leave upon retirement to be used for payment of future health care premiums to a choice of insurance plans (sick leave conversion). The City has no obligation to pay the health insurance allowance for retirees with no accumulated sick leave. All employees hired on or after January 1, 2011 will not be eligible to participate in the sick leave conversion. If an employee elects to receive a buy-out contribution, they will be removed from the City’s medical plan and will no longer be allowed to return to the City’s medical plan.
Employees Covered: See the City of Modesto Annual Comprehensive Financial Report for more information regarding total employees covered.
Contributions: The OPEB plan and its contribution requirements are established by Memoranda of Understanding with the applicable employee bargaining units and may be amended by the agreements between the City and the bargaining units. The annual contribution is based on the actuarially determined contribution. For the fiscal year ended June 30, 2021, the City’s cash contributions were $2,869,050 in payments made by the employer and no estimated subsidy was determined.
Net OPEB Liability: The Bus Fund’s net OPEB liability of $466,582 was measured as of June 30, 2020, and was determined by an actuarial valuation as of July 1, 2019 that rolled forward to determine the June 30, 2021 total OPEB liability, based on the following actuarial methods and assumptions. Standard actuarial update procedures were used to roll forward to the measurement date from the actuarial valuation.
Actuarial assumptions and other inputs- The total OPEB liability in the June 30, 2020 actuarial valuation was determined using the following actuarial assumptions and other inputs, applied to all periods included in the measurement, unless otherwise specified:
Discount Rate: 2.21% at June 30, 2020. 3.50% for TOL as of June 30, 2019;
3.87% for TOL as of June 30, 2018; 3.58% for TOL as of June 30, 2017
Inflation: 2.5% annually
Salary Increases: Aggregate – 3% annually. Merit – CalPERS 1997-2015 Experience Study
Trend: Medical: Graded from 5.8% to ultimate 4.0% in 2076 Mortality: CalPERS 1997-2015 Experience Study
Mortality Improvement: MacLeod Watts Scale 2020 applied generationally from 2015 #1..
- 606 -
CITY OF MODESTO
TRANSPORTATION DEVELOPMENT ACT FUNDS
NOTES TO THE FINANCIAL STATEMENTS (continued)
24 NOTE 10 – OTHER POSTEMPLOYMENT BENEFITS (OPEB) (continued) Net OPEB Liability (continued):
Actuarial assumptions and other inputs (continued)- The changes in the Net OPEB liability for the plan year was as follows:
Net OPEB
Liability
(Asset)
Balance at June 30, 2020 (Measurement Date: June 30, 2019) $ 411,717 Changes in the year:
Service cost 12,824
Interest on the
total OPEB liability 13,861
Differences between expected and
actual experience 26,650
Changes in assumptions 46,633
Benefit payments, including
refunds of employee contributions (45,103)
Net change 54,865
Balance at June 30, 2021 (Measurement Date: June 30, 2020) $ 466,582 Discount Rate- The discount rate used to measure the total OPEB liability was 2.21 percent. The projection of the cash flows used to determine the discount rate assumed that the City contributions will be made at rates equal to the actuarially determined contribution rates. Based on these assumptions, the OPEB City’s net position was projected to be available to make all projected OPEB payments for current active and inactive employees and beneficiaries based on the ‘pay as you go’ annual contributions.
Sensitivity of the Net OPEB Liability to Changes in the Discount Rate: The following presents the total OPEB liability of the City, as well as what the City’s total OPEB liability would be if it were calculated using a discount rate that is 1- percent lower (1.21 percent) or 1-percentage point higher (3.21 percent) than the current discount rate:
Current
Discount Rate Discount Rate Discount Rate
- 1% (1.21%) 2.21% + 1% (3.21%)
Net OPEB Liability $ 509,784 $ 466,582 $ 430,185
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CITY OF MODESTO
TRANSPORTATION DEVELOPMENT ACT FUNDS
NOTES TO THE FINANCIAL STATEMENTS (continued)
25 NOTE 10 – OTHER POSTEMPLOYMENT BENEFITS (OPEB) (continued) Sensitivity of the Net OPEB Liability to Changes in the Healthcare Cost Trend Rate: The following presents the total OPEB liability of the City, as well as what the City’s total OPEB liability would be if it were calculated using a healthcare cost trend rate that is 1-percent lower (4.80 percent) or 1-percentage point higher (6.80 percent) than the current discount rate:
Current
Healthcare
Trend Rate Trend Rate Trend Rate
- 1% (4.80%) 5.80% + 1% (6.80%)
Net OPEB Liability $ 437,191 $ 466,582 $ 504,303
OPEB Expense and Deferred Outflows/Inflows of Resources Related to OPEB: For the year ended June 30, 2021, the City recognized OPEB Expense of $34,952.
Components of OPEB Expense:
Service cost $ 12,824
Interest on the
total OPEB liability 13,861
Expensed portion of current-period changes of
assumptions or other inputs 8,267
OPEB Expense $ 34,952
At June 30, 2021, the City reported deferred outflows and inflows of resources related to the OPEB Plan from the following sources:
Deferred Deferred
Outflows of Inflows of
Resources Resources
OPEB contributions subsequent to the
measurement date $ 43,995 $ -
Difference between actual and expected experiences 21,688 (3,704) Changes in assumptions 42,679 (20,739)
Total $ 108,362 $ (24,443)
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CITY OF MODESTO
TRANSPORTATION DEVELOPMENT ACT FUNDS
NOTES TO THE FINANCIAL STATEMENTS (continued)
26 NOTE 10 – OTHER POSTEMPLOYMENT BENEFITS (OPEB) (continued) OPEB Expense and Deferred Outflows/Inflows of Resources Related to OPEB (continued): The OPEB contributions made subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended June 30, 2022. Other amounts reported as deferred outflows and deferred inflows of resources related to the OPEB Plan will be recognized as OPEB expense as follows:
Year Ending
June 30, Amount
2022 $ 6,695
2023 6,644
2024 9,509
2025 12,417
2026 4,659
Total $ 39,924
NOTE 11 – CONTINGENCY
Coronavirus Pandemic: Management has determined the events regarding the novel coronavirus require disclosure in accordance with accounting standards. On March 4, 2020 Governor Newsom issued an emergency proclamation declaring a state of emergency in California due to the novel coronavirus (COVID-19). The COVID-19 outbreak is ongoing, and the ultimate geographic spread of the virus, the duration and severity of the outbreak and the economic and other actions that may be taken by government authorities to contain the outbreak or treat its impact are uncertain. The ultimate impact of COVID-19 on the operations and finances of the City remains unknown.
NOTE 12 – SUBSEQUENT EVENT
On January 26, 2021, the City Council authorized the Joint Powers Agency Agreement to form the Stanislaus Regional Transit Authority (StanRTA), which consolidated Stanislaus County’s public transportation services and City of Modesto’s public transportation services into one regionalized public transportation agency. This consolidation is effective as of July 1, 2021, and has the potential to enhance transit service, reduce overall costs of service and will lead to a more “easy to use” public transportation option for residents by having more coordinated transit services in the County.
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27 CITY OF MODESTO
TRANSPORTATION DEVELOPMENT ACT FUNDS
REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED)
SCHEDULE OF THE BUS FUND’S PROPORTIONATE SHARE
OF THE NET PENSION LIABILITY
LAST 10 YEARS*
2021 2020 2019 2018 2017 2016 2015
Miscellaneous Plan:
Bus Fund's proportion of the net pension liability 2.78969% 2.64746% 2.77420% 2.72162% 2.76335% 2.68432% 2.55465% Bus Fund's proportionate share of the net pension
liability $ 3,861,752 $ 3,423,069 $ 3,177,325 $ 3,151,106 $ 2,759,942 $ 2,149,389 $ 1,899,090 Bus Fund's covered payroll $ 1,491,188 $ 1,347,768 $ 1,381,897 $ 1,271,958 $ 1,249,245 $ 1,115,678 $ 1,127,265 Plan net pension liability as a percentage of their
covered payroll 265.64% 253.98% 242.74% 257.04% 233.94% 201.29% 168.47% Plan fiduciary net position as a percentage of the total pension liability 72.16% 73.18% 73.88% 73.17% 74.26% 79.02% 81.18% Notes to Schedule:
Changes in assumptions:
The discount rate was changed from 7.50 percent (net of administrative expense) in 2015 to 7.65% in 2016 and 7.15% in 2018. * - GASB Statement No. 68 was implemented in 2015.
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28 CITY OF MODESTO
TRANSPORTATION DEVELOPMENT ACT FUNDS
REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED)
SCHEDULE OF THE BUS FUND’S CONTRIBUTIONS
LAST 10 YEARS*
2021 2020 2019 2018 2017 2016 2015
Miscellaneous Plan:
Contractually required contribution $ 346,108 $ 313,888 $ 281,249 $ 224,420 $ 227,290 $ 178,451 $ 143,374 Contributions in relation to the contractually
required contribution 346,108 313,888 281,249 224,420 227,290 178,451 143,374 Contribution deficiency (excess) $ - $ - $ - $ - $ - $ - $ - Bus Fund's covered-employee payroll $ 1,491,188 $ 1,347,768 $ 1,381,897 $ 1,271,958 $ 1,249,245 $ 1,115,678 $ 1,127,265 Contributions as a percentage of
covered-employee payroll 23.21% 23.29% 20.35% 17.64% 18.19% 15.99% 12.72% Notes to Schedule:
Actuarial Cost Method Entry-Age Normal
Actuarial assumptions:
Inflation 2.625%
Salary increase Varies (1)
Payroll growth 3.00% (2)
Investment rate of return 7.25%
Retirement age 2017 Experience Study (3)
Mortality 2017 Experience Study (4)
(1) Depending on age, service, and type of employment.
(2) Net of pension plan investment and administrative expenses, including inflation. (3) The probabilities of retirement are based on the 2017 CalPERS Experience Study for the period 1997 to 2015. (4) The probabilities of mortality are based on the 2017 CalPERS Experience Study for the period from 1997 to 2015. Pre-retirement and post-retirement mortality rates include 5 years of projected mortality improvement using Scale AA published by the Society of Actuaries. * - GASB Statement No. 68 was implemented in 2015.
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29 CITY OF MODESTO
TRANSPORTATION DEVELOPMENT ACT FUNDS
REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED)
SCHEDULE OF CHANGES IN THE NET OPEB LIABILITY AND RELATED RATIOS LAST 10 YEARS*
2021 2020 2019 2018
Total Net OPEB Liability
Service cost $ 12,824 $ 12,634 $ 15,007 $ 44,570
Interest on the
total OPEB liability 13,861 15,776 16,169 13,904
Differences between expected and
actual experience 26,650 - (7,290) -
Changes in assumptions 46,633 11,300 (20,352) (17,129)
Benefit Payments, including
Refunds of Employee Contributions (45,103) (46,870) (42,574) (37,857) Net change in Total OPEB Liability 54,865 (7,160) (39,040) 3,488 Total Net OPEB Liability - Beginning 411,717 418,877 457,917 454,429 Total Net OPEB Liability - Ending $ 466,582 $ 411,717 $ 418,877 $ 457,917 Bus Fund's covered-employee payroll-
Measurement Period $ 829,679 $ 791,689 $ 773,314 $ 866,613 Net OPEB liability as a percentage of
covered-employee payroll 56.24% 52.00% 54.17% 52.84%
Notes to Schedule:
Changes in assumptions:
The discount rate was changed from 2.85% to 3.58% for the measurement period ended June 30, 2017, and was changed to 3.87% for the measurement period ended June 30, 2018. The discount rate was changed from 3.50% in June 30, 2019 to 2.21% for the measurement period ended June 30, 2020. * - GASB Statement No. 75 was implemented in 2018.
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30 CITY OF MODESTO
TRANSPORTATION DEVELOPMENT ACT FUNDS
REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED)
SCHEDULE OF CONTRIBUTIONS – OPEB PLAN
LAST 10 YEARS*
2021 2020 2019 2018
Actuarially determined contribution $ 116,203 $ 55,547 $ 42,574 $ 37,857 Contributions in relation to the
actuarially determined contribution (116,203) (55,547) (42,574) (37,857) Contribution Deficiency (Excess) $ - $ - $ - $ -
Bus Fund's covered-employee payroll-
Measurement Period $ 829,679 $ 791,689 $ 773,314 $ 866,613 Contributions as a percentage of
covered-employee payroll 14.01% 7.02% 5.51% 4.37%
Notes to Schedule:
The actuarial methods and assumptions used to set the actuarially determined contributions for Fiscal Year 2018- 2021 were as follows for June 30, 2017 through 2020 measurement date actuarial valuations.
Actuarial Cost Method Entry-Age Normal
Actuarial assumptions:
Discount Rate: 2.21% at June 30, 2020. 3.5% for TOL as of June 30, 201;
3.87% for TOL as of June 30, 2018; 3.58% for TOL as of June 30, 2017
Asset Valuation Method: Market Value of Assets
Inflation: 2.5% Annually
Salary Increases: Aggregate – 3% annually. Merit – CalPERS 1997-2015 Experience Study
Trend: Medical: Graded from 5.8% to ultimate 4.0% in 2076 Mortality: CalPERS 1997-2015 Experience Study
Mortality Improvement: MacLeod Watts Scale 2020 applied generationally from 2015 * - GASB Statement No. 75 was implemented in 2018.
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7473 N. INGRAM AVE., SUITE 102 ⬧ FRESNO, CA 93711
_______________________________________________________________________________________________ P (559) 412-7576 ⬧ F (559) 493-5325 ⬧ WWW.HHCCPAS.COM
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 AND THE TRANSPORTATION DEVELOPMENT ACT Honorable Members of the City Council
City of Modesto, California
We have audited, in accordance with the auditing standards generally 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 Local Transportation Special Revenue Funds and the Bus Enterprise Fund (collectively known as the Transportation Development Act Funds) of the City of Modesto, California (the City), as of and for the year ended June 30, 2021 and the related notes to the financial statements, and have issued our report thereon dated November 24, 2021.
Internal Control over Financial Reporting
In planning and performing our audit of the financial statements, we considered the City’s internal control over financial reporting as it relates to the Transportation Development Act Funds (internal control) to determine the 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 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 entity’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.
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. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified.
Compliance and Other Matters
As part of obtaining reasonable assurance about whether the City’s Transportation Development Act Funds financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, including the applicable statutes, rules and regulations of the Transportation Development Act and the allocation instructions and resolutions of the Stanislaus Council of Governments as required by Sections 6666 and 6667 of Title 21, Division 3, Chapter 2, Article 5.5 of the California Code of Regulations, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions 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 or the Transportation Development Act.
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32 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 effectiveness of the entity’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards and the Transportation Development Act in considering the entity’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose.
HUDSON HENDERSON & COMPANY, INC.
Fresno, California
November 24, 2021
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7473 N. INGRAM AVE., SUITE 102 ⬧ FRESNO, CA 93711
_______________________________________________________________________________________________ P (559) 412-7576 ⬧ F (559) 493-5325 ⬧ WWW.HHCCPAS.COM
INDEPENDENT ACCOUNTANTS’ REPORT ON COMPLIANCE WITH THE PUBLIC TRANSPORTATION
MODERNIZATION, IMPROVEMENT, AND SERVICE ENHANCEMENT ACCOUNT (PTMISEA) Honorable Members of the City Council
City of Modesto, California
We have examined the City of Modesto’s (the City) compliance with the verification of receipt and appropriate expenditure of bond funds per the Public Transportation Modernization, Improvement, and Service Enhancement Account (PTMISEA) guidelines during the year ended June 30, 2021. Management is responsible for the City’s compliance with the specified requirements. Our responsibility is to express an opinion on the City’s compliance with the specified requirements based on our examination.
Our examination was conducted in accordance with attestation standards established by the American Institute of Certified Public Accountants. Those standards require that we plan and perform the examination to obtain reasonable assurance about whether the City complied, in all material respects, with the specified requirements referenced above. An examination involves performing procedures to obtain evidence about whether the City complied with the specified requirements. The nature, timing, and extent of the procedures selected depend on our judgment, including an assessment of the risks of material noncompliance, whether due to fraud or error. We believe that the evidence we obtained is sufficient and appropriate to provide a reasonable basis for our opinion.
Our examination does not provide a legal determination on the City’s compliance with specified requirements.
In our opinion, the City complied, in all material respects, with the aforementioned requirements during the year ended June 30, 2021.
HUDSON HENDERSON & COMPANY, INC.
Fresno, California
November 24, 2021
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CITY OF MODESTONATIONAL TRANSIT DATABASE REPORT
INDEPENDENT ACCOUNTANTS’ REPORT
ON
FEDERAL FUNDING ALLOCATION STATISTICS
FOR THE YEAR ENDED
JUNE 30, 2021
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7473 N. INGRAM AVE., SUITE 102 ⬧ FRESNO, CA 93711
_______________________________________________________________________________________________ P (559) 412-7576 ⬧ F (559) 493-5325 ⬧ WWW.HHCCPAS.COM
INDEPENDENT ACCOUNTANTS’ REPORT
To the City Council of the City of Modesto
and the Board of Trustees of the Modesto Area Express
Modesto, California
The Federal Transit Administration (the FTA) has established the following standards with regard to the data reported to it in the Federal Funding Allocation Statistics form of the City of Modesto’s annual National Transit Database (NTD) report:
• A system is in place and maintained for recording data in accordance with NTD definitions. The correct data are being measured and no systematic errors exist. • A system is in place to record data on a continuing basis, and the data gathering is an ongoing effort. • Source documents are available to support the reported data and are maintained for FTA review and audit for a minimum of three years following FTA’s receipt of the NTD report. The data are fully documented and securely stored.
• A system of internal controls is in place to ensure the data collection process is accurate and that the recording system and reported comments are not altered. Documents are reviewed and signed by a supervisor, as required.
• The data collection methods are those suggested by FTA or otherwise meet FTA requirements. • The deadhead miles, computed as the difference between the reported total actual vehicle miles data and the reported total actual VRM data, appear to be accurate. • Data are consistent with prior reporting periods and other facts known about transit agency operations.
We have applied the procedures to the data contained in the accompanying FFA-10 forms for the fiscal year ending June 30, 2021. Such procedures, which were agreed to and specified by FTA in the Declarations section of the 2021 NTD Policy Manual and were agreed to by the City of Modesto, were applied to assist you in evaluating whether the transit agency complied with the standards described in the first paragraph of this part and that the information included in the NTD report Federal Funding Allocation Statistics form for the fiscal year ending June 30, 2021 is presented in conformity with the requirements of the Uniform System of Accounts (USOA) and Records and Reporting System; Final Rule, as specified in 49 CFR Part 630, Federal Register, dated January 15, 1993, and as presented in the 2021 NTD Policy Manual. This report is intended solely for your information and for the FTA and should not be used by those who did not participate in determining the procedures.
The procedures were applied separately to each of the information systems used to develop the reported actual VRM, FG DRM, PMT, and OE of the Modesto Area Express for the fiscal year ending June 30, 2021 for the following mode:
• Demand Response Service- Purchased Transportation
• Motor Bus Service- Purchased Transportation
• Demand Taxi- Purchased Transportation
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2 Finding: In our procedures performed we noted that the annual total Unlinked Passenger Trips per the Federal Funding Allocation Statistics (FFA-10) DR PT report did not match the Annual Total Passengers per the Form 406B Annual Report to FTA. Per discussion with management the difference was caused by a new individual in charge of completing the Form 406B who mistakenly excluded some passengers from the Annual Total Passengers on the Form 406B. Management then revised the Form 406B and the Annual Total Passengers on the revised Form 406B matched the total Unlinked Passenger Trips per the Federal Funding Allocation Statistics (FFA-10) DR PT without exception.
No other information or findings were noted in our procedures performed that require communication in accordance with the requirements of the Uniform System of Accounts (USOA) and Records and Reporting System; Final Rule, as specified in 49 CFR Part 630, Federal Register, dated January 15, 1993, and as presented in the 2021 NTD Policy Manual.
In performing the procedures, the information included in the NTD report on the Federal Funding Allocation Statistics form for the fiscal year ending June 30, 2021 is presented fairly, in all material respects, with the requirements of the USOA and Records and Reporting System; Final Rule, as specified in 49 CFR Part 630, Federal Register, dated January 15, 1993, and as presented in the 2021 NTD Policy Manual.
HUDSON HENDERSON & COMPANY, INC.
Fresno, California
November 24, 2021
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CITY OF MODESTO
AUDIT COMMITTEE REPORT
DATE OF MEETING:
January 20, 2022
Date: December 6, 2021
TO: Audit Committee
Sue Zwahlen, Chair
David Wright, Vice-Chair
Jenny Kenoyer, Member
THROUGH: Joseph P. Lopez, City Manager
FROM: DeAnna Christensen, Director of Finance
SUBJECT: Fiscal Year 2020-2021 Auditor’s Report on Compliance of the Passenger Facility Charge Program
CONTACT: Maria Garnica, Accounting Manager (209) 577-5249; [email protected]
DESCRIPTION:
Consider approving the Auditors’ Reports and Schedule of Passenger Facility Charge Revenues and Expenditures for Fiscal Year Ended June 30, 2021, and forwarding to Council for approval. (Funding Source: Not Applicable)
STRATEGIC PLAN ELEMENT:
This item supports the City of Modesto 2020-2025 Strategic Plan focus of Governance and Service Delivery under Goal H: Achieve Financial Sustainability.
BACKGROUND:
Passenger Facility Charges (PFC’s) are fees that airline passengers pay when they purchase their ticket. The funds received pursuant to the PFC program are used for the purpose of capital improvements at the airports. FAA guideline Part 158.67 requires each Airport/Public Agency to conduct an annual audit of their Passenger Facility Charge (PFC) program. The accounting firm of Hudson Henderson & Company, Inc., conducted the Fiscal Year 2020-2021 audit report.
DISCUSSION:
Based on the attached Auditors’ Reports and Schedule of Passenger Facility Charge Revenues and Expenditures, the auditors identified no findings on the PFC program for Fiscal Year Ended June 30, 2021. Furthermore, as of June 30, 2021 all PFC revenues have been fully spent, and as a result, the City will not be required to prepare a financial audit of the PFC revenues commencing as of Fiscal Year 2022.
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Audit Committee, January 20, 2022
Fiscal Year 2020-2021 PFC Auditor’s Report
FISCAL IMPACT:
While the information contained in this report discloses the financial performance for the Airport’s PFC program, there is no direct fiscal impact.
Approved by:
DeAnna Christensen, Director of Finance
Joseph P. Lopez, City Manager
Attachment:
1. Independent Auditors’ Reports and Schedule of Passenger Facility Charge Revenues and Expenditures for Fiscal Year Ended June 30, 2021. #2..
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CITY OF MODESTO, CALIFORNIA
INDEPENDENT AUDITORS’ REPORTS
AND
SCHEDULE OF PASSENGER FACILITY CHARGE
REVENUES AND EXPENDITURES
FOR THE YEAR ENDED
JUNE 30, 2021
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TABLE OF CONTENTS
Page
Independent Auditors’ Report ........................................................................................................................... 1 Financial Schedule:
Schedule of Passenger Facility Charge Revenues and Expenditures ............................................................ 3
Notes to the Schedule of Passenger Facility Charge
Revenues and Expenditures ....................................................................................................................... 4
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...................................................................................................................... 5 Independent Auditors’ Report on Compliance with Applicable Requirements of the Passenger Facility Charge Program and Internal Control Over Compliance ................................................................................................................... 7 Schedule of Findings and Responses ................................................................................................................. 9 Schedule of Prior Year Findings and Responses ................................................................................................ 10 #2..
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7473 N. INGRAM AVE., SUITE 102 FRESNO, CA 93711 _______________________________________________________________________________________________ P (559) 412-7576 F (559) 493-5325 WWW.HHCCPAS.COM
INDEPENDENT AUDITORS’ REPORT
To the Honorable City Council
City of Modesto, California
Report on the Financial Schedule
We have audited the accompanying schedule of passenger facility charge revenues and expenditures of the City of Modesto, California, for the year ended June 30, 2021, and the related notes to the schedule of passenger facility charge revenues and expenditures, which collectively comprise the passenger facility charge program financial schedule as listed in the table of contents.
Management’s Responsibility for the Financial Schedule
Management is responsible for the preparation and fair presentation of this financial schedule in accordance with accounting principles generally accepted in the United States of America and the requirements of the Passenger Facility Charge Audit Guide for Public Agencies; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on this financial schedule based on our audit. We conducted our audit in accordance with auditing standards generally 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. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial schedule is free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial schedule. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial schedule, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial schedule in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion.
An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial schedule.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the schedule of passenger facility charge revenues and expenditures referred to above presents fairly, in all material respects, the financial position of the passenger facility charge revenues and expenditures, for the year ending June 30, 2021, in accordance with accounting principles generally accepted in the United States of America and the requirements of the Passenger Facility Charge Audit Guide for Public Agencies. #2..
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2 Emphasis of Matter
Basis of Accounting
As discussed in Note 1, the schedule of passenger facility charge revenues and expenditures of the City of Modesto is designed to present the financial position and transactions of the passenger facility charge program as previously noted, for the year ending June 30, 2021. It does not purport to, and does not present fairly the financial position of the City of Modesto, California as of June 30, 2021, the changes in its financial position, or, where applicable, its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. Our opinion is not modified with respect to this matter.
Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated October 1, 2021, on our consideration of the passenger facility charge financial schedule’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City of Modesto passenger facility charge program’s internal control over financial reporting and compliance.
HUDSON HENDERSON & COMPANY, INC.
Fresno, California
October 1, 2021
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The accompanying notes are an integral part of the schedule of passenger facility charge revenues and expenditures 3 CITY OF MODESTO, CALIFORNIA
SCHEDULE OF PASSENGER FACILITY CHARGE REVENUES AND EXPENDITURES FOR THE YEAR ENDED JUNE 30, 2021
Cumulative
Total
For the
Year Ended
Cumulative
Total
Revenues:
June 30,
2020
September 30,
2020
December 31,
2020
March 31,
2021
June 30,
2021
June 30,
2021
June 30,
2021
Passenger facility charge revenue received 979,064 $ - $ - $ - $ - $ - $ 979,064 $ Interest earned 57,157 - - - - - 57,157 Total passenger facility charge revenue received 1,036,221 - - - - - 1,036,221 Expenditures:Application No. Date Approved Amount
Project No. Project Name Approved
Completed and Closed Applications 1,030,005 $ 1,030,005 - - - - - 1,030,005 Total passenger facility charge revenue expended 1,030,005 - - - - - 1,030,005 Project close out transfer - - 6,216 - - 6,216 6,216Unliquidated passenger facility charge revenues 6,216 $ - $ (6,216) $ - $ - $ (6,216) $ - $ For the Quarter Ended
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CITY OF MODESTO, CALIFORNIA
NOTES TO THE SCHEDULE OF PASSENGER FACILITY CHARGE
REVENUES AND EXPENDITURES
4 NOTE 1 – BASIS OF PRESENTATION
The accompanying schedule of passenger facility charge revenues and expenditures (the Schedule) includes the passenger facility charge activity at the Modesto City-County Airport by the City of Modesto, California (the City).
Interest income is earned on deposit balances of passenger facility charge receipts. Passenger facility charge collection revenues and expenditures are presented on the accrual basis of accounting. In the accrual basis of accounting, revenue is reported when earned and readily available, generally considered to be received within sixty days. Expenditures are reported when incurred. The information in this schedule is presented for purposes of additional analysis, as specified in the Passenger Facility Charge Audit Guide for Public Agencies, issued by the Federal Aviation Administration (FAA). Therefore, some amounts presented in this schedule may differ from amounts presented in, or used in preparation of, the City’s basic financial statements.
Passenger facility charge expenditures may consist of direct project costs, administrative costs, debt service costs and bond financing costs, if requested in the application. Eligible expenditures not requested or approved in the application are not applied against passenger facility charge collections. The Schedule includes the eligible expenditures that have been applied against passenger facility charge collections through June 30, 2021, however, the City did not collect any passenger facility charges during the year because commercial airlines discontinued operations in June 2014.
NOTE 2 – PASSENGER FACILITY CHARGE MATCHING FUNDS
Passenger facility charge revenue is used to match funding for various grants. Funding provided under government grants is considered earned as the related allowable expenditures are incurred.
NOTE 3 – RELATIONSHIP TO FEDERAL FINANCIAL REPORTS
Amounts reported in the Schedule agree to or can be reconciled with the amounts reported to the FAA on the Passenger Facility Charge Quarterly Status Reports.
NOTE 4 – PASSENGER FACILITY CHARGE CLOSEOUT
On September 30, 2020, the City received formal approval from the FAA that the remaining $6,216 in unliquidated passenger facility charge revenues could be transferred to a non-interest bearing account of the City and formally close out the passenger facility charge program with the City. This will be the final report of the passenger facility charge program of the City.
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7473 N. INGRAM AVE., SUITE 102 FRESNO, CA 93711 _______________________________________________________________________________________________ P (559) 412-7576 F (559) 493-5325 WWW.HHCCPAS.COM
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 City Council
City of Modesto, California
We have audited, in accordance with the auditing standards generally 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 schedule of passenger facility charge revenues and expenditures of the City of Modesto, California (the City), for the year ended June 30, 2021, and the related notes to the schedule of passenger facility charge revenues and expenditures, which collectively comprise the passenger facility charge program financial schedule, and have issued our report thereon dated October 1, 2021.
Internal Control Over Financial Reporting
In planning and performing our audit of the passenger facility charge program financial schedule, we considered the City’s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the passenger facility charge program financial schedule, 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 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 passenger facility charge program financial schedule, 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.
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. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified.
Compliance and Other Matters
As part of obtaining reasonable assurance about whether the City’s passenger facility charge program financial schedule is 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 material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. #2..
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6 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 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 City’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose.
HUDSON HENDERSON & COMPANY, INC.
Fresno, California
October 1, 2021
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7473 N. INGRAM AVE., SUITE 102 FRESNO, CA 93711 _______________________________________________________________________________________________ P (559) 412-7576 F (559) 493-5325 WWW.HHCCPAS.COM
INDEPENDENT AUDITORS’ REPORT ON COMPLIANCE WITH APPLICABLE REQUIREMENTS OF THE PASSENGER
FACILITY CHARGE PROGRAM AND INTERNAL CONTROL OVER COMPLIANCE To the Honorable City Council
City of Modesto, California
Compliance
We have audited the City of Modesto, California’s (the City) compliance with compliance requirements described in the Passenger Facility Charge Audit Guide for Public Agencies, issued by the Federal Aviation Administration (the Guide) applicable to the City’s passenger facility charge program at the Modesto City-County Airport for the year ended June 30, 2021.
Management’s Responsibility for the Financial Schedule
Compliance with the requirements referred to above is the responsibility of the City’s management.
Auditors’ Responsibility
Our responsibility is to express an opinion on the City’s compliance based on our audit.
We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the Guide. Those standards and the Guide require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the compliance requirements referred to above that could have a material effect on the passenger facility charge program occurred. An audit includes examining, on a test basis, evidence about the City’s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances.
We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide legal determination of the City’s compliance with those requirements.
Opinion
In our opinion, the City complied, in all material respects, with the compliance requirements referred to above that are applicable to its passenger facility charge program for the year ended June 30, 2021.
Internal Control Over Compliance
Management of the City is responsible for establishing and maintaining effective internal control over compliance with the compliance requirements referred to above. In planning and performing our audit, we considered the City’s internal control over compliance with requirements that could have a direct and material effect on the passenger facility charge program in order to determine our auditing procedures for the purpose of expressing our opinion on compliance and to test and report on the internal control over compliance in accordance with the Guide. #2..
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8 Our consideration of the internal control over compliance would not necessarily disclose all matters in the internal control that might be material weaknesses. A material weakness is a condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that noncompliance with applicable requirements of laws and regulations that would be material in relation to the passenger facility charge program being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions.
This report is intended solely for the information and use of the City Council, management, and the Federal Aviation Administration and is not intended to be and should not be used by anyone other than these specified parties.
HUDSON HENDERSON & COMPANY, INC.
Fresno, California
October 1, 2021
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9 CITY OF MODESTO, CALIFORNIA
SCHEDULE OF PASSENGER FACILITY CHARGE REVENUES AND EXPENDITURES
SCHEDULE OF FINDINGS AND RESPONSES
FOR THE YEAR ENDED JUNE 30, 2021
There were no current year financial statement findings reported in accordance with Government Auditing Standards.
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10 CITY OF MODESTO, CALIFORNIA
SCHEDULE OF PASSENGER FACILITY CHARGE REVENUES AND EXPENDITURES
SCHEDULE OF PRIOR YEAR FINDINGS AND RESPONSES
FOR THE YEAR ENDED JUNE 30, 2020
There were no prior year financial statement findings reported in accordance with Government Auditing Standards. #2..
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CITY OF MODESTO
AUDIT COMMITTEE REPORT
DATE OF MEETING:
January 20, 2022
Date: December 6, 2021
TO: Audit Committee
Sue Zwahlen, Chair
David Wright, Vice-Chair
Jenny Kenoyer, Vice-Chair
THROUGH: Joseph P. Lopez, City Manager
FROM: DeAnna Christensen, Director of Finance
SUBJECT: Fiscal Year 2020-2021 Auditor’s Report on Compliance of the Measure L: Local Roads First Transportation Funding Measure
CONTACT: Maria Garnica, Accounting Manager (209) 577-5249; [email protected]
DESCRIPTION:
Consider approving the Auditors’ Reports and Schedule of Measure L Program Revenues and Expenditures for Fiscal Year Ended June 30, 2021 and forwarding to Council for approval. (Funding Source: Not Applicable)
STRATEGIC PLAN ELEMENT:
This item supports the City of Modesto 2020-2025 Strategic Plan focus of Governance and Service Delivery under Goal H: Achieve Financial Sustainability.
BACKGROUND:
In November of 2016 the voters of Stanislaus County approved the county wide, 25-year, halfcent sales tax increase known as Measure L. As part of the safeguards built into the expenditure plan an annual independent audit and annual reporting must be completed. On page 8 of the expenditure plan, the ordinance states “Annual fiscal and compliance audits will be conducted by a CPA, to assure that the revenues expended are necessary and reasonable.” The ordinance also requires an audit annually to ensure that administrative expenses were no more than 1% of revenues expended and that the jurisdiction meets its maintenance of effort.
On December 12, 2017, per Resolution 2017-505, Council approved the Measure L master funding agreement with the Stanislaus Council of Governments (StanCOG). The agreement states in Article II: Funding Prerequisites and Requirement that the recipient shall annually submit to StanCOG, “An annual independent audit of all of recipients Measure L accounts which audit shall be conducted at recipient’s sole cost and expense.” #3..
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Audit Committee, January 20, 2022
Fiscal Year 2020-2021 Measure L Auditor’s Report
For the audit related to FY 2020-2021, the City received information from StanCOG that they would be continuing to conduct the annual audit and that it would be at the expense of StanCOG as part of the 1% allowable administrative expenses within the Measure L ordinance.
The accounting firm of Hudson Henderson & Company, Inc., as selected by StanCOG conducted the Fiscal Year 2020-2021 audit report.
DISCUSSION:
As part of the City’s Fiscal Year 2020-2021 Measure L Program Audit, the accounting firm verified the revenues and expenditures, fund balances, and that the Maintenance of Effort requirement was met.
In order to accomplish the audit, the City provided the following information to the firm:
Receipt of payment for all cash received from StanCOG Detail of all payroll charges and expenditures supporting documentation Copies of completed monthly reports submitted to StanCOG Revenue and Expenditure General Ledger detail and the trial balance for all Measure L funds
Copy of the certification for the maintenance of effort List of all Measure L projects and a copy of the Strategic Plan After all information was provided, staff worked closely with the firm to ensure that any requested documents and questions asked were addressed in a timely manner.
On November 5, 2021, Hudson Henderson & Company, Inc. issued the final independent auditor’s report of the Measure L program for the fiscal year ending in June 30, 2021. In addition, on November 5, 2021, the firm issued a letter to the Policy Board of Stanislaus Council of Governments with the final report. Both the final report and the letter to StanCOG did not have any findings for the year ending June 30, 2021.
FISCAL IMPACT:
While the information contained in this report discloses the financial performance for the City, there is no direct fiscal impact.
Approved by:
DeAnna Christensen, Director of Finance
Joseph P. Lopez, City Manager
Attachment:
1. Independent Auditors’ Reports and Schedule of Measure L Revenues and Expenditures for Fiscal Year Ended June 30, 2021.
2. Letter to the Policy Board of Stanislaus Council of Governments #3..
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STANISLAUS COUNCIL OF GOVERNMENTS
MEASURE L – CITY OF MODESTO
ANNUAL FINANCIAL REPORT
FOR THE YEAR ENDED
JUNE 30, 2021
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TABLE OF CONTENTS
Page
Independent Auditors’ Report.......................................................................................................................... 1 Financial Statements:
Government-Wide Financial Statements:
Statement of Net Position ................................................................................................................... 3 Statement of Activities ........................................................................................................................ 4 Fund Financial Statements:
Balance Sheet- Governmental Fund .................................................................................................... 5 Statement of Revenues, Expenditures and Changes in
Fund Balance- Governmental Fund ................................................................................................... 6 Statement of Revenues, Expenditures and Changes in Fund Balance- Budget to Actual (GAAP)- Special Revenue Fund .............................................................................. 7 Notes to Financial Statements ........................................................................................................................... 8 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 and the Measure L Program ........................................................................ 13 Supplemental Schedule:
Schedule of Expenditures by Project ............................................................................................................ 15 #3..
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7473 N. INGRAM AVE., SUITE 102 FRESNO, CA 93711 _______________________________________________________________________________________________ P (559) 412-7576 F (559) 493-5325 WWW.HHCCPAS.COM
INDEPENDENT AUDITORS’ REPORT
To the Policy Board
Stanislaus Council of Governments
Report on the Financial Statements
We have audited the accompanying financial statements of the governmental activities and major fund of the Measure L Fund of the City of Modesto, California (the Measure L Fund), pertaining to certain provisions of Measure L: Local Road First Transportation Funding Measure (the Measure L Program), issued by the Stanislaus Council of Governments acting as the Stanislaus County Transportation Authority as of and for the year ended June 30, 2021, the budgetary comparison schedule for the special revenue fund and the related notes to the financial statements, which collectively comprise the financial statements as listed in the table of contents.
Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally 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. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities and major fund of the Measure L Fund, as of June 30, 2021, and the respective changes in financial position and budgetary comparison for the special revenue fund for the year then ended in accordance with accounting principles generally accepted in the United States of America. #3..
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2 Other Matters
Required Supplementary Information
Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis be presented to supplement the financial statements. Management has omitted such information. Such information, although not a part of the financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the financial statements in an appropriate operational, economic, or historical context. Our opinion on the financial statements is not affected by this missing information.
Other Information
The schedule of expenditures by project (supplemental schedule) is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. Such information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the supplemental schedule is fairly stated in all material respects in relation to the financial statements as a whole.
Emphasis-of-Matters
As discussed in Note 1 to the financial statements, the financial statements present only the Measure L Fund referred to above and are not intended to present the financial position of the City of Modesto as a whole and the respective changes in financial position, or where applicable, its cash flows for the year then ended, in accordance with accounting principles generally accepted in the United States of America. Our opinion is not modified with respect to this matter.
Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated November 5, 2021, on our consideration of the Measure L Fund’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance.
That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Measure L Fund’s internal control over financial reporting and compliance.
HUDSON HENDERSON & COMPANY, INC.
Fresno, California
November 5, 2021
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The accompanying notes are an integral part of the financial statements. 3 STANISLAUS COUNCIL OF GOVERNMENTS
MEASURE L - CITY OF MODESTO
STATEMENT OF NET POSITION
JUNE 30, 2021
Governmental
Activities
ASSETS
Cash and investments $ 18,039,837
Accounts receivable 3,987,875
Advances to city funds 471,416
Total Assets 22,499,128
LIABILITIES
Accounts payable 46,808
Total Liabilities 46,808
NET POSITION
Restricted 22,452,320
Total Net Position $ 22,452,320
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The accompanying notes are an integral part of the financial statements. 4 STANISLAUS COUNCIL OF GOVERNMENTS
MEASURE L - CITY OF MODESTO
STATEMENT OF ACTIVITIES
FOR THE YEAR ENDED JUNE 30, 2021
Net (Expense)
and Revenue
Program and Changes
in Net Position
Capital Grants
and Governmental
Functions/Programs Expenses Contributions Activities
Governmental Activities:
Public ways and facilities $ 7,017,056 $ 13,574,935 $ 6,557,879 Totals $ 7,017,056 $ 13,574,935 6,557,879
General Revenues:
Investment earnings 7,709
Total General Revenues 7,709
6,565,588
Net Position, Beginning of Year 15,898,704
Prior Period Adjustment (11,972)
Net Position, End of Year $ 22,452,320
Revenues
Change in Net Position
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The accompanying notes are an integral part of the financial statements. 5 STANISLAUS COUNCIL OF GOVERNMENTS
MEASURE L - CITY OF MODESTO
BALANCE SHEET
GOVERNMENTAL FUND
JUNE 30, 2021
ASSETS
Cash and investments $ 18,039,837
Accounts receivable 3,987,875
Advances to city funds 471,416
Total Assets $ 22,499,128
LIABILITIES
Accounts payable $ 46,808
Total Liabilities 46,808
DEFERRED INFLOWS OF RESOURCES
Unavailable revenue 4,503
Total Deferred Inflows of Resources 4,503
FUND BALANCE
Restricted 22,447,817
Total Fund Balance 22,447,817
Total Liabilities, Deferred Inflows of Resources, and Fund Balance $ 22,499,128 Reconciliation of the Balance Sheet of the Governmental Fund to the Statement of Net Position:
Total Fund Balance - Governmental Fund $ 22,447,817
Adjustments to the Balance Sheet of the Governmental Fund to reconcile with the Statement of Net Position:
Revenues not available for current-period expenditures are deferred in governmental funds, but are considered earned in the Statement of Net Position. 4,503
Total Net Position - Governmental Activities $ 22,452,320 #3..
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The accompanying notes are an integral part of the financial statements. 6 STANISLAUS COUNCIL OF GOVERNMENTS
MEASURE L - CITY OF MODESTO
STATEMENT OF REVENUES, EXPENDITURES
AND CHANGES IN FUND BALANCE
GOVERNMENTAL FUND
FOR THE YEAR ENDED JUNE 30, 2021
REVENUES
Measure L funds $ 13,570,432
Investment earnings 7,709
Total Revenues 13,578,141
EXPENDITURES
Public ways and facilities 7,017,056
Total Expenditures 7,017,056
Net Change in Fund Balance 6,561,085
Fund Balance, Beginning of Year 15,898,704
Prior Period Adjustment (11,972)
Fund Balance, End of Year $ 22,447,817
Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balance of the Governmental Fund to the Statement of Activities:
Net change in Fund Balance - Governmental Fund $ 6,561,085 Adjustments to the Statement of Revenues, Expenditures and Changes in Fund Balance of the Governmental Fund to reconcile with the Statement of Activities:
Revenues that are considered earned in the Statement of Activities that did not provide current financial resources in the current year were not reported as revenues in the governmental funds. 4,503 Change in Net Position - Governmental Activities $ 6,565,588 #3..
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The accompanying notes are an integral part of the financial statements. 7 STANISLAUS COUNCIL OF GOVERNMENTS
MEASURE L - CITY OF MODESTO
STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE- BUDGET TO ACTUAL (GAAP)-
SPECIAL REVENUE FUND
FOR THE YEAR ENDED JUNE 30, 2021
Actual Variance with
Original Final (GAAP Basis) Final Budget
RESOURCES (INFLOWS)
Measure L funds $ 9,366,639 $ 13,558,189 $ 13,570,432 $ 12,243 Investment earnings - - 7,709 7,709
Total Resources (Inflows) 9,366,639 13,558,189 13,578,141 19,952
CHARGES TO
APPROPRIATIONS (OUTFLOWS)
Streets and roads 7,688,152 7,688,152 6,175,527 1,512,625 Bike and pedestrian 759,184 759,184 267,510 491,674
Transit services 475,000 475,000 475,000 -
Traffic management 1,014,750 1,014,750 574,019 440,731
Total Charges to
Appropriations (Outflows) 9,937,086 9,937,086 7,017,056 2,920,030 Net Change in Fund Balance $ (570,447) $ 3,621,103 6,561,085 $ 2,939,982 Fund Balance, Beginning of Year 15,898,704
Prior Period Adjustment (11,972)
Fund Balance, End of Year $ 22,447,817
Budgeted Amounts
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STANISLAUS COUNCIL OF GOVERNMENTS
MEASURE L - CITY OF MODESTO
NOTES TO FINANCIAL STATEMENTS
8 NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements present only the City of Modesto’s Measure L Fund and are not intended to present fairly the financial position, changes in financial position, or cash flows of the City of Modesto, California (the City) as a whole in accordance with accounting principles generally accepted in the United States of America.
Reporting Entity: The City of Modesto’s Measure L Fund (the Measure L Fund), is a special revenue fund of the City.
Stanislaus Council of Governments (StanCOG) is the regional transportation planning agency and the metropolitan planning organization of Stanislaus County, which oversees the Measure L Initiative. Measure L provides for the implementation of the Expenditure Plan as approved and adopted by StanCOG, which provides funding for countywide local street and road improvements, arterial street widening, signalization, pedestrian, bicyclist and driver safety improvements. These needed improvements are funded by Measure L, the one-half of one percent retail transactions and use tax established for a twenty-five-year period, April 1, 2017 – March 31, 2042. The revenues will be deposited in a special fund, used solely for the transportation projects, improvements and programs described in the Expenditure Plan which is considered a part of Ordinance, and incorporated into Measure L Policies and Procedures.
The City’s Department of Public Works and Planning staff provides the necessary services such as maintenance and accounting to the Measure L Fund on a reimbursement basis with no allocation of payroll expenses.
Measurement Focus, Basis of Accounting and Financial Statement Presentation:
The government-wide financial statements (i.e., the Statement of Net Position and the Statement of Activities) report information on all of the Measure L fund activities. The Statement of Activities demonstrates the degree to which the direct expenses of a given function are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include 1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function. Taxes and other items not properly included among program revenues are reported as general revenues.
Separate financial statements are provided for governmental funds. Major individual governmental funds are reported as separate columns in the fund financial statements. • Government-Wide Financial Statements
The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements are met.
• Governmental Fund Financial Statements
Governmental fund financial statements (i.e., Balance Sheet and Statement of Revenues, Expenditures and Changes in Fund Balance) are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. Revenues susceptible to accrual are property taxes, interest on investments, and intergovernmental revenues. Property taxes are recorded as revenues in the fiscal year in which they are levied, provided they are collected in the current period or within sixty days thereafter. A one-year availability period is used for all other revenues. Interest on invested funds is recognized when earned. Intergovernmental revenues that are reimbursements for specific expenditures are recognized when all eligibility requirements are met. Expenditures generally are recorded when a liability is incurred, as under accrual accounting; however, debt service expenditures are recorded only when payment is due.
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STANISLAUS COUNCIL OF GOVERNMENTS
MEASURE L - CITY OF MODESTO
NOTES TO FINANCIAL STATEMENTS (continued)
9 NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Measurement Focus, Basis of Accounting and Financial Statement Presentation (continued):
Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the government’s near-term financing decisions. Both the governmental fund Balance Sheet and the governmental fund Statement of Revenues, Expenditures and Changes in Fund Balance provide a reconciliation to facilitate this comparison between governmental funds and governmental activities.
The Measure L Fund reports one major governmental fund:
The Special Revenue Fund is the primary operating fund and accounts for all financial resources of the Measure L Fund of the City.
The City adopts annual appropriated budgets for its special revenue fund, which is a major fund. Budgetary comparison schedules have been provided for this fund to demonstrate compliance with the budgets.
Cash and Investments: In order to maximize the flexibility of its investment program and to aid in cash budgeting, the City pools the cash of all funds, except for monies deposited with fiscal agents in accordance with related bond indentures. The cash and investments balance in each fund represents that fund’s equity share of the City’s cash and investment pool, as the City places no restrictions on the deposit account for the participating funds.
Interest income earned on pooled cash and investments is allocated quarterly. Interest income on restricted cash and investments with fiscal agents is credited directly to the related fund.
Accounts Receivable: The Measure L Fund utilizes the allowance method of accounting for and reporting uncollectible or doubtful accounts. At June 30, 2021, management considered all accounts to be fully collectible and, therefore, no allowance was recorded in the accompanying financial statements.
Advances To City Funds: Balances representing lending transactions between the Measure L Program and the City of Modesto outstanding at the end of the fiscal year are reported as advances to city funds. These balances represent non-current portions of lending transactions expected to be fully collectible.
Accounts Payable: Certain costs are incurred by the Fund during the current reporting period but are not paid until after the beginning of the next fiscal period. These costs are reported as accounts payable in the financial statements.
The Measure L Fund current accounts payable balance is $46,808 as of June 30, 2021.
Net Position: Net position represents the residual interest of all assets after liabilities are deducted. In accordance with GASB Statement No. 34, the fund equity section on the Statement of Net Position was combined to report total net position and present it in three broad components: net investment in capital assets, restricted, and unrestricted.
Net position, net investment in capital assets, includes capital assets net of accumulated depreciation and outstanding principal balances of debt attributable to the acquisition, construction, or improvement of those assets.
Net position is restricted when constraints are imposed by third parties or by law through constitutional provisions or enabling legislation. All other net position is unrestricted. The Measure L Fund’s policy is to first apply restricted resources when an expense is incurred for purposes for which both restricted and unrestricted net position is available.
Management’s Use of Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
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STANISLAUS COUNCIL OF GOVERNMENTS
MEASURE L - CITY OF MODESTO
NOTES TO FINANCIAL STATEMENTS (continued)
10 NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Deferred Outflows and Inflows of Resources: Pursuant to GASB Statement No. 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position, and GASB Statement No. 65, Items Previously Reported as Assets and Liabilities, the Measure L Fund recognizes deferred outflows and inflows of resources.
In addition to assets, the Statements of Net Position will sometimes report a separate section for deferred outflows of resources. A deferred outflow of resources is defined as a consumption of net position by the Measure L Fund that is applicable to a future reporting period.
In addition to liabilities, the Statements of Net Position will sometimes report a separate section for deferred inflows of resources. A deferred inflow of resources is defined as an acquisition of net position by the Measure L Fund that is applicable to a future reporting period. Deferred inflows of resources reported by the Measure L Fund consist of intergovernmental revenues earned, but not yet received.
Fund Balance: In the fund financial statements, in accordance with GASB Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions, governmental funds report fund balance as nonspendable, restricted, committed, assigned or unassigned based primarily on the extent to which the Measure L Fund is bound to honor constraints on how specific amounts can be spent.
• Nonspendable – Amounts that are not in spendable form (such as inventory) or are required to be maintained intact. The Measure L Fund did not have any nonspendable resources as of June 30, 2021. • Restricted – Amounts constrained to specific purposes by their providers (such as grantors, bondholders, and higher levels of government), through constitutional provisions, or by enabling legislation. The Measure L Fund considers all of its resources to be restricted. • Committed – Amounts constrained to specific purposes by the Measure L Fund itself, using its highest level of decision-making authority (City Council). To be reported as committed, amounts cannot be used for any other purpose unless the City Council takes the same highest-level action to remove or change the constraint. The Measure L Fund did not have any committed resources as of June 30, 2021. • Assigned – Amounts the Measure L Fund intends to use for a specific purpose. Intent can be expressed by the Measure L Fund or by an official or body to which the City Council delegates the authority. The Measure L Fund did not have any assigned resources as of June 30, 2021. • Unassigned – Amounts that are available for any purpose. The Measure L Fund did not have any unassigned resources as of June 30, 2021.
The Measure L Fund establishes and modifies or rescinds fund balance commitments by passage of an ordinance or policy. This is typically done through adoption and amendment of the budget. A fund balance commitment is further indicated in the budget as a designation or commitment of the fund, such as approved contracts. Assigned fund balance is established by the Measure L Fund through adoption or amendment of the budget or future year budget plan as intended for a specific purpose. The Measure L Fund’s policy is to first apply restricted, committed or assigned resources when an expense is incurred for purposes for which both restricted, committed or assigned and unassigned fund balance is available.
Governmental Accounting Standards Update: During the year ending June 30, 2021, the Measure L Fund implemented the following standards with no financial impact:
GASB Statement No. 84 – Fiduciary Activities. The requirements of this statement are effective for reporting periods beginning after December 15, 2018. Subsequent to issuance, GASB Statement No. 95 postponed the requirements of this statement to reporting periods beginning after December 15, 2019. #3..
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STANISLAUS COUNCIL OF GOVERNMENTS
MEASURE L - CITY OF MODESTO
NOTES TO FINANCIAL STATEMENTS (continued)
11 NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) GASB Statement No. 89 – Accounting for Interest Cost Incurred before the End of a Construction Period. The requirements of this statement are effective for reporting periods beginning after December 15, 2019. Subsequent to issuance, GASB Statement No. 95 postponed the requirements of this statement to reporting periods beginning after December 15, 2020.
GASB Statement No. 90 – Majority Equity Interests- an amendment of GASB Statements No. 14 and No 61. The requirements of this statement are effective for reporting periods beginning after December 15, 2018. Subsequent to issuance, GASB Statement No. 95 postponed the requirements of this statement to reporting periods beginning after December 15, 2019.
Released GASB Statements to be implemented in future financial statements are as follows:
GASB Statement No. 87 – Leases. The requirements of this statement are effective for reporting periods beginning after December 15, 2019. Subsequent to issuance, GASB Statement No. 95 postponed the requirements of this statement to reporting periods beginning after June 15, 2021.
GASB Statement No. 91 – Conduit Debt Obligations. The requirements of this statement are effective for reporting periods beginning after December 15, 2020. Subsequent to issuance, GASB Statement No. 95 postponed the requirements of this statement to reporting periods beginning after December 15, 2021.
GASB Statement No. 92 – Omnibus 2020. The requirements of this statement are effective for reporting periods beginning after June 15, 2020. Subsequent to issuance, GASB Statement No. 95 postponed the requirements of this statement to June 15, 2021.
GASB Statement No. 93 – Replacement of Interbank Offered Rates. The requirements of this statement are effective for reporting periods beginning after June 15, 2021. Subsequent to issuance, GASB Statement No. 95 postponed the certain requirements of this statement to reporting periods beginning after June 15, 2022.
GASB Statement No. 94 – Public-Private and Public-Public Partnerships and Availability Payment Arrangements. The requirements of this statement are effective for reporting periods beginning after June 15, 2022.
GASB Statement No. 96 – Subscription-Based Information Technology Arrangements. The requirements of this statement are effective for reporting periods beginning after June 15, 2022 GASB Statement No. 97 – Certain Component Unit Criteria, and Accounting and Financial Reporting for Internal Revenue Code Section 457 Deferred Compensation Plans. The requirements of this statement are effective for reporting periods beginning after June 15, 2021
Subsequent Events: In compliance with accounting standards, management has evaluated events that have occurred after year-end to determine if these events are required to be disclosed in the financial statements.
Management has determined that no events require disclosure in accordance with accounting standards. These subsequent events have been evaluated through November 5, 2021, which is the date the financial statements were available to be issued.
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STANISLAUS COUNCIL OF GOVERNMENTS
MEASURE L - CITY OF MODESTO
NOTES TO FINANCIAL STATEMENTS (continued)
12 NOTE 2 – CASH AND INVESTMENTS
Cash and investments as of June 30, 2021 are classified in the accompanying financial statements as follows:
Statement of Net Position:
Cash and investments $ 18,039,837
Total cash and investments $ 18,039,837
Summary of Deposits:
Cash and investments as of June 30, 2021 consist of the following:
Deposits with City of Modesto $ 18,039,837
Total cash and investments $ 18,039,837
See the City of Modesto’s Annual Comprehensive Financial Report (ACFR) for disclosures related to risks and fair value measurements.
NOTE 3 – RISK MANAGEMENT
The Measure L Fund is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. The City provides coverage for these losses through commercial insurance policies and/or through participation in the City of Modesto program. Refer to the City of Modesto’s ACFR for additional information.
NOTE 4 – COMMITMENTS AND CONTINGENCIES
Commitments and contingencies, undeterminable in amount, include normal recurring pending claims and litigation.
In the opinion of management, based upon discussion with legal counsel, there is no pending litigation which is likely to have a material adverse effect on the financial position of the Measure L Fund.
NOTE 5 – COVID-19 CONTINGENCY
On March 4, 2020, Governor Newsom issued an emergency proclamation declaring a State of Emergency in California due to the novel Coronavirus (COVID-19). The COVID-19 outbreak is ongoing, and the ultimate geographic spread of the virus, the duration and severity of the outbreak, and the economic and other actions that may be taken by governmental authorities to contain the outbreak or to treat its impact are uncertain. A vaccination has been created and is being administered throughout the state, including the Agency’s service area. The ultimate impact of COVID19 on the Measure L Fund is unknown.
NOTE 6 – PRIOR PERIOD ADJUSTMENT
A prior period adjustment of ($11,972) was recorded to the special revenue fund and governmental activities beginning fund balance and net position, to account for expenditures incurred in the prior period that were improperly not recorded and reported in the prior year. #3..
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7473 N. INGRAM AVE., SUITE 102 FRESNO, CA 93711 _______________________________________________________________________________________________ P (559) 412-7576 F (559) 493-5325 WWW.HHCCPAS.COM
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 AND THE MEASURE L PROGRAM To the Policy Board
Stanislaus Council of Governments
We have audited, in accordance with the auditing standards generally 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; and certain provisions of the Measure L: Local Road First Transportation Funding Measure (the Measure L Program), issued by the Stanislaus Council of Governments acting as the Stanislaus County Transportation Authority, the Measure L Fund of the City of Modesto (the Measure L Fund) for the year ended June 30, 2021, the budgetary comparison schedule for the special revenue fund and the related notes to the financial statements, and have issued our report thereon dated November 5, 2021.
Internal Control over Financial Reporting
In planning and performing our audit of the financial statements, we considered the Measure L Fund’s internal control over financial reporting (internal control) to determine the 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 Measure L Fund’s internal control. Accordingly, we do not express an opinion on the effectiveness of the Measure L Fund’s internal control.
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 entity’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.
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. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified.
Compliance and Other Matters
As part of obtaining reasonable assurance about whether the Measure L Fund’s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, grant agreements, and the Measure L Program, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions 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 or the Measure L Program.
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14 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 effectiveness of the Measure L Fund’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards and the Measure L Program in considering the Measure L Fund’s internal control and compliance.
Accordingly, this communication is not suitable for any other purpose.
HUDSON HENDERSON & COMPANY, INC.
Fresno, California
November 5, 2021
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STANISLAUS COUNCIL OF GOVERNMENTS
MEASURE L – CITY OF MODESTO
SUPPLEMENTAL SCHEDULE
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15 STANISLAUS COUNCIL OF GOVERNMENTS
MEASURE L - CITY OF MODESTO
SCHEDULE OF EXPENDITURES BY PROJECT
FOR THE YEAR ENDED JUNE 30, 2021
Category
Project
Number Project Name
Expense Budget
-Local Control
Measure L
FY 20-21
Expenses
Project to Date
Expenses
through
6/30/2021
Budget
Remaining for
Future Fiscal
Years
Local Streets & Roads 100806 2016 Pavement Rehab Project $ 750,000 $ 409,129 $ 409,129 $ 340,871 Local Streets & Roads 100942 Paradise Road Improvements 415,000 - - 415,000 Local Streets & Roads 100966 Pelandale from Sisk to Dale 700,000 286,890 299,864 400,136 Local Streets & Roads 101036 Carpenter Street Improvements 2,628,392 5 2,628,392 - Local Streets & Roads 101037 Lakewood Street Improvements 2,365,558 119 2,365,558 - Local Streets & Roads 101038 Wylie,Floyd,Carver Improvements 2,250,469 (2,660) 2,250,469 - Local Streets & Roads 101042 Paradise Road ATP - Construction Portion 760,000 - - 760,000 Local Streets & Roads 101088 Standiford Avenue Pavement Rehab 2,788,144 (181) 2,788,144 - Local Streets & Roads 101118 Claus Road Pavement Rehab 1,183,203 (2,091) 1,183,203 - Local Streets & Roads 101120 Village One Slurry Seal 2,622,060 (305) 2,554,544 67,516 Local Streets & Roads 101141 Downtown Master Plan 108,450 9,306 108,450 - Local Streets & Roads 101168 Scenic Dr Pavement Rehab Phase 1 (Lakewood to Claus) 1,739,500 155,258 216,143 1,523,357 Local Streets & Roads 101169 Scenic Dr Pavement Rehab Phase 2 (Downey to 3,100,000 23,922 36,626 3,063,374 Local Streets & Roads 101170 Tully Road Pavement Rehab 2,400,000 1,556,204 2,011,062 388,938Local Streets & Roads 101171 Coffee Road Pavement Rehab Phase 1 4,100,000 3,149,581 3,186,243 913,757Local Streets & Roads 101214 Granger Neighborhood Pavement Rehabilitation 330,000 163,194 193,646 136,354 Local Streets & Roads 101245 2020 Pvmnt Condition Survey 300,000 - - 300,000 Local Streets & Roads 101246 Briggsmore-McHenry to Oakdale 367,500 201,638 201,638 165,862 Local Streets & Roads 101248 Orangeburg Ave. Pvmt Rehab Ph1 241,500 82,463 82,463 159,037 Local Streets & Roads 101249 Pelandale Nghbrhd Pvmt Maintenance 2,271,250 143,055 143,055 2,128,195 Total Local Streets and Roads 31,421,026 $ 6,175,527 $ 20,658,629 $ 10,762,397 $ Traffic Management 100634 Upgrade Traffic Signals - 2013 $ 175,000 $ 139,851 $ 139,851 $ 35,149 Traffic Management 100719 Traffic Signals 2013 (Ros/Bel) - (38,783) - - Traffic Management 100720 Traffic Signals 2013 (Pres/Mt. Vrn) 122,080 (13,532) 122,080 - Traffic Management 100884 Emergency Vehicle Pre-Emption 61,500 32 61,500 - Traffic Management 100990 System Safety Analysis Program 32,500 23,531 29,492 3,008 Traffic Management 101039 Task Force for School Safety 45,000 3,499 23,141 21,859 Traffic Management 101040 Orville Wright Elementary Improve. 638,265 300,330 531,584 106,681 Traffic Management 101043 Replace Traffic Controllers 584,437 - 584,437 - #3..
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16 STANISLAUS COUNCIL OF GOVERNMENTS
MEASURE L - CITY OF MODESTO
SCHEDULE OF EXPENDITURES BY PROJECT (continued)
FOR THE YEAR ENDED JUNE 30, 2021
Category
Project
Number Project Name
Expense Budget
-Local Control
Measure L
FY 20-21
Expenses
Project to Date
Expenses
through
6/30/2021
Budget
Remaining for
Future Fiscal
Years
Traffic Management 101089 Tully Road Safety Improvement 511,183 $ 246 $ 30,831 $ 480,352 $ Traffic Management 101122 Install 2 Flashing Beacons 200,000 - 9,970 190,030Traffic Management 101123 Fiber Drop Traffic Signal Cabinet 560,000 - 156 559,844 Traffic Management 101124 Replace 35 Traffic Controllers 178,250 - 150,149 28,101Traffic Management 101125 Traffic Signal Analysis Study 250,000 42,340 243,270 6,730Traffic Management 101172 School Safety Program Study 250,000 61,309 61,698 188,302Traffic Management 101173 School Area All Stop Beacon 48,000 - 48,000 -Traffic Management 101174 Advance School Zone Beacons at 13 Schools 130,000 - - 130,000Traffic Management 101175 School Crosswalk Beacon 345,000 8,171 25,386 319,614Traffic Management 101176 Upgrade Crosswalk to RRFB 460,000 6,325 37,353 422,647Traffic Management 101177 Upgrade RRFB - Elliot School 20,000 19,670 19,670 330Traffic Management 101178 Neighborhood Traffic Calming 150,000 11,300 20,678 129,322Traffic Management 101179 HAWK System at Hetch-Hetchy on Tully and Prescott 500,000 9,245 25,846 474,154 Traffic Management 101221 School Safety Program Study - Projects 525,000 - - 525,000 Traffic Management 101242 Install Video Detection 410,000 - - 410,000Traffic Management 101322 Claus Road Signal Coordination 27,750 269 269 27,481 Traffic Management 101323 Scenic Drive Signal Coordination 37,000 217 217 36,783 Total Traffic Management 6,260,965 $ 574,019 $ 2,165,577 $ 4,095,388 $ Bike and Pedestrian 100882 MJC Bike Path Phase 2 202,047 $ 13,803 $ 202,047 $ - $ Bike and Pedestrian 101041 Active Transportation Plan 300,000 42,544 217,894 82,106Bike and Pedestrian 101042 Paradise Road ATP 60,000 - 25,000 35,000Bike and Pedestrian 101073 Carver/Bangs-Pelandale/Snyder Bike Trail System 205,591 - - 205,591Bike and Pedestrian 101126 Dry Creek Trail Maintenance 685,000 202,618 607,634 77,108 Bike and Pedestrian 101180 Dry Creek Trail Pavement Rehab & ADA Upgrade Phase II 867,660 (5,717) 12,105 855,555 Bike and Pedestrian 101247 Virginia Corridor Trail Maintenance 632,500 12,685 12,685 619815 Bike and Pedestrian 101250 Neighborhood ADA Program 25,000 1,578 1,578 23,422 Total Bike and Pedestrian 2,977,798 $ 267,510 $ 1,078,943 $ 1,898,597 $ #3..
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17 STANISLAUS COUNCIL OF GOVERNMENTS
MEASURE L - CITY OF MODESTO
SCHEDULE OF EXPENDITURES BY PROJECT (continued)
FOR THE YEAR ENDED JUNE 30, 2021
Category
Project
Number Project Name
Expense Budget
-Local Control
Measure L
FY 20-21
Expenses
Project to Date
Expenses
through
6/30/2021
Budget
Remaining for
Future Fiscal
Years
Transit Services Transfer Fund 4540 - Bus Fixed Route Max Operations - $ - $ 475,000 $ - $ * Total Transit Services - - 475,000 -
Grand Total 40,659,789 $ 7,017,056 $ 24,378,150 $ 16,756,381 $ *Transit funding is not budgeted for by the City; revenues earned during the year are utilized to supplement fare box ratio requirements. #3..
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7473 N. INGRAM AVE., SUITE 102 ⬧ FRESNO, CA 93711
_______________________________________________________________________________________________ P (559) 412-7576 ⬧ F (559) 493-5325 ⬧ WWW.HHCCPAS.COM
November 5, 2021
To the Policy Board of
Stanislaus Council of Governments
We have audited the accompanying financial statements of the major fund and governmental activities of the Measure L Fund of the City of Modesto, California (the Measure L Fund) pertaining to certain provisions of Measure L: Local Road First Transportation Funding Measure, (The Measure L Program) issued by the Stanislaus Council of Governments acting as the Stanislaus County Transportation Authority as of and for the year ended June 30, 2021, the budgetary comparison schedule for the special revenue fund and the related notes to the financial statements, which collectively comprise the financial statements as listed in the table of contents. Professional standards require that we provide you with information about our responsibilities under generally accepted auditing standards, 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 August 6, 2021.
Professional standards also require that we communicate to you the following information related to our audit.
Significant Audit Findings
Qualitative Aspects of Accounting Practices
Management is responsible for the selection and use of appropriate accounting policies. The significant accounting policies used by the Measure L Fund are described in Note 1 to the financial statements. No new significant accounting policies were adopted and the application of existing policies was not changed during 2021. We noted no transactions entered into by the Measure L Fund 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.
Accounting estimates are an integral part of the financial statements prepared by management and are based on management’s 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 significantly from those expected. There weren’t any sensitive estimates affecting the financial statements.
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 addition, none of the misstatements detected 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.
Disagreements with Management
For purposes of this letter, a disagreement with management is a financial accounting, reporting, 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. #3..
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Stanislaus Council of Governments
Measure L – City of Modesto
November 5, 2021
Management Representations
We have requested certain representations from management that are included in the management representation letter dated November 5, 2021.
Management Consultations with Other Independent Accountants In some cases, management may decide to consult with other accountants 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 Measure L Fund’s financial statements or a determination of the type of auditor’s opinion that may be expressed on those statements, our professional standards require the consulting 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 application of accounting principles and auditing standards, with management each year prior to retention as the Measure L Fund’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 were engaged to report on the Schedule of Expenditures by project, the supplemental schedule, 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, content, and methods of preparing the information to determine that the information complies with accounting principles generally accepted in the United States of America, the method of preparing it has not changed from the prior period, and the information is appropriate and complete in relation to our audit of the financial statements. We compared and reconciled the supplementary information to the underlying accounting records used to prepare the financial statements or to the financial statements themselves.
Restriction on Use
This information is intended solely for the information and use of the Policy Board and management of the City of Modesto and management of the City of Modesto and is not intended to be, and should not be, used by anyone other than these specified parties.
Sincerely,
HUDSON HENDERSON & COMPANY, INC.
By: Brian Henderson, CPA
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CITY OF MODESTO
AUDIT COMMITTEE REPORT
DATE OF MEETING:
January 20, 2022
Date: December 6, 2021
TO: Audit Committee
Sue Zwahlen, Chair
David Wright, Vice-Chair
Jenny Kenoyer, Member
THROUGH: Joseph P. Lopez, City Manager
FROM: DeAnna Christensen, Director of Finance
SUBJECT: Fiscal Year 2020-2021 Single Audit Report
CONTACT: Maria Garnica, Accounting Manager (209) 577-5249; [email protected]
DESCRIPTION:
Consider approving the Fiscal Year 2020-2021 Single Audit Report for the City of Modesto from external auditors Hudson Henderson & Company, Inc. and forwarding to Council for approval. (Funding Source: Not Applicable)
STRATEGIC PLAN ELEMENT:
This item supports the City of Modesto 2020-2025 Strategic Plan focus of Governance and Service Delivery under Goal H: Achieve Financial Sustainability.
BACKGROUND:
The City of Modesto Single Audit report is federally mandated by the provisions of the Federal Single Audit Act Amendments of 1996 and Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), which requires an audit to be conducted for any non-Federal entity that expends $750,000 or more a year in Federal awards. This audit was conducted by the City’s external auditor, Hudson Henderson & Company, Inc. and the main objectives were to ensure a fair presentation of the basic financial statements and the schedule of expenditures of Federal awards, and to audit the City's internal controls and compliance with legal requirements, with special emphasis on internal controls and legal requirements involving the administration of federal awards expended during the fiscal year.
DISCUSSION:
As part of the City’s Fiscal Year 2020-2021 Single Audit report, no audit findings were reported for any of the grant funding received from the various federal agencies. All findings reported in the prior fiscal year have had the correction plan implemented. #4..
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Audit Committee, January 20, 2022
Single Audit Reports for FY 2020-2021
Due to new federal funding received from the United States Treasury Department, under the Emergency Rental Assistance Program the auditors have only issued the draft report in case any new audit standards are issued through Office of Management and Budget (OMB) under the Uniform Guidance for this federal award. At this time, the auditors are not aware of any changes.
FISCAL IMPACT:
While the information contained in these reports discloses the financial performance for the City, there is no direct fiscal impact.
Approved by:
DeAnna Christensen, Director of Finance
Joseph P. Lopez, City Manager
Attachment:
1. City of Modesto Draft Single Audit FY 20-21
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CITY OF MODESTO
SINGLE AUDIT REPORT
FOR THE YEAR ENDED
JUNE 30, 2021
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TABLE OF CONTENTS
Page
Reports:
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...................................................................................................................... 1 Independent Auditors’ Report on Compliance for Each Major Program and on Internal Control over Compliance; and Report on the Schedule of Expenditures of Federal Awards
Required by the Uniform Guidance ................................................................................................................. 3 Financial Schedule:
Schedule of Expenditures of Federal Awards .................................................................................................... 5 Notes to Schedule of Expenditures of Federal Awards ..................................................................................... 9 Findings and Questioned Costs:
Schedule of Findings and Questioned Costs ...................................................................................................... 10 Summary Schedule of Prior Year Findings and Questioned Costs ..................................................................... 12 #4..
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7473 N. INGRAM AVE., SUITE 102 FRESNO, CA 93711 _______________________________________________________________________________________________ P (559) 412-7576 F (559) 493-5325 WWW.HHCCPAS.COM
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 City Council of the City of Modesto
Modesto, California
We have audited, in accordance with the auditing standards generally 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 Modesto, California (the City), as of and for the year ended June 30, 2021, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements, and have issued our report thereon dated December XX, 2021.
Internal Control over Financial Reporting
In planning and performing our audit of the financial statements, we considered the City’s internal control over financial reporting (internal control) to determine the 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 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 entity’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.
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. Given these limitations, during our audit we did not identify any deficiencies in internal control that we considered to be material weaknesses. However, material weaknesses may exist that have not been identified.
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 material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions 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. #4..
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2 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 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 City’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose.
HUDSON HENDERSON & COMPANY, INC.
Fresno, California
December XX, 2021
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7473 N. INGRAM AVE., SUITE 102 FRESNO, CA 93711 _______________________________________________________________________________________________ P (559) 412-7576 F (559) 493-5325 WWW.HHCCPAS.COM
INDEPENDENT AUDITORS’ REPORT ON COMPLIANCE FOR EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE; AND REPORT ON THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS REQUIRED BY
THE UNIFORM GUIDANCE
To the City Council of the City of Modesto
Modesto, California
Report on Compliance for Each Major Federal Program
We have audited the City of Modesto, California’s (the City) compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on each of the City’s major federal programs for the year ended June 30, 2021. The City’s major federal programs are identified in the summary of auditors’ results section of the accompanying schedule of findings and questioned costs.
Management’s Responsibility
Management is responsible for compliance with federal statutes, regulations, and the terms and conditions of its federal awards applicable to its federal programs.
Auditors’ Responsibility
Our responsibility is to express an opinion on compliance for each of the City’s major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Those standards and the Uniform Guidance require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the City’s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances.
We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program.
However, our audit does not provide a legal determination of the City’s compliance.
Opinion on Each Major Federal Program
In our opinion, the City complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended June 30, 2021.
Report on Internal Control over Compliance
Management of the City is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered the City’s internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with the Uniform Guidance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the City’s internal control over compliance. #4..
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4 A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis.
A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance.
Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified.
Report on Schedule of Expenditures of Federal Awards Required by the Uniform Guidance 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, as of and for the year ended June 30, 2021, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements. We issued our report thereon dated December 8, 2021, which contained unmodified opinions on those financial statements.
Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the basic financial statements. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by the Uniform Guidance and is not a required part of the basic financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements.
The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the schedule of expenditures of federal awards is fairly stated in all material respects in relation to the basic financial statements as a whole.
Purpose of Report
The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance.
Accordingly, this report is not suitable for any other purpose.
HUDSON HENDERSON & COMPANY, INC.
Fresno, California
January XX, 2022
#4..
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CITY OF MODESTO
SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
FOR THE YEAR ENDED JUNE 30, 2021
The accompanying notes are an integral part of the Schedule of Expenditures of Federal Awards. 5 PassThrough to
Federal Grant Sub- Federal
CFDA No. Number recipients Expenditures
Federal Grantor/ Pass-through
Grantor/ Program or Cluster Title
U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENTDirect Programs CDBG - Entitlement Grants Clus ter
Community Development Block Grants (CDBG)/Entitlement Program 14.218 B-14-MC-060002 - $ 782 $ Community Development Block Grants (CDBG)/Entitlement Program 14.218 B-17-MC-060002 - 155Community Development Block Grants (CDBG)/Entitlement Program 14.218 B-18-MC-060002 - 157,131Community Development Block Grants (CDBG)/Entitlement Program 14.218 B-19-MC-060002 - 324,403Community Development Block Grants (CDBG)/Entitlement Program 14.218 B-20-MC-060002 447,114 1,185,253
14.218 B-20-MW-060002 769,512 907,957
Total CDBG - Entitlement Grants Clus ter 1,216,626 2,575,681 Emergency Solutions Grant Program 14.231 E-19-MC-060002 11,795 11,795 Emergency Solutions Grant Program 14.231 E-20-MC-060002 84,501 104,417Emergency Solutions Grant Program - CARES Act 14.231 E-20-MW-060002 1,034,928 1,393,294 Total Emergency Solutions Grant Program 1,131,224 1,509,506 Home Investment Partners hips Program 14.239 M-15-MC-060207 - 3,715Home Investment Partners hips Program 14.239 M-16-MC-060207 - 315,041Home Investment Partners hips Program 14.239 M-17-MC-060207 - 315,748Home Investment Partners hips Program 14.239 M-18-MC-060207 - 860,023Home Investment Partners hips Program 14.239 M-19-MC-060207 - 16,258Home Investment Partners hips Program 14.239 M-20-MC-060207 - 138,134 Total Home Inves tment Partners hi ps Program - 1,648,919 ARRA - Neighborhood Stabilization Program (Recovery Act Funded) 14.256 B-09-LN-CA-0053 - 13,414Continuum of Care Program 14.267 CA1754L9T101800 84,778 84,778 TOTAL U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT 2,432,628 5,832,298U.S. DEPARTMENT OF JUSTICE Direct Programs
Coronavirus Emergency Supplemental Funding 16.034 2020VDBX0954 - 103,315 Public Safety Partners hip and Community Polici ng Grants 16.710 2016ULWX0021 - 19,647 Community Development Block Grants (CDBG)/Entitlement Program - CARES Act #4..
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CITY OF MODESTO
SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS (continued)
FOR THE YEAR ENDED JUNE 30, 2021
The accompanying notes are an integral part of the Schedule of Expenditures of Federal Awards. 6 PassThrough to
Federal Grant Sub- Federal
CFDA No. Number recipients Expenditures
Federal Grantor/ Pass-through
Grantor/ Program or Cluster Title
Pass ed through the County of Stanis laus
Edward Byrne Memorial Justice As sis tance Grant 16.738 2017-DJ-BX-0939 - $ 134,043 $ Edward Byrne Memorial Justice As sis tance Grant 16.738 2018-DJ-BX-0826 - 102,711 Edward Byrne Memorial Justice As sis tance Grant 16.738 2019-DJ-BX-0693 - 11,024 Edward Byrne Memorial Justice As sis tance Grant 16.738 2020-DJ-BX-0226 - 26,827 Total Edward Byrne Memorial Justice As sistance Grant - 274,605 TOTAL U.S. DEPARTMENT OF JUSTICE - 397,567U.S. DEPARTMENT OF TRANSPORTATION Direct Programs
Airport Improvement Program 20.106 AIP-041 - 2,165
Airport Improvement Program - CARES Act 20.106 AIP-042 - 69,000 Total Airport Improvement Program - 71,165
Federal Transit Clus ter
Federal Trans it - Capital Inves tment Grants 20.500 CA-04-0198 - 824,667 Federal Trans it - Formul a Grants 20.507 CA-2017-010-00 - 515,408Federal Trans it - Formul a Grants 20.507 CA-2017-054-00 - 1,100,000Federal Trans it - Formul a Grants 20.507 CA-2017-157-00 - 105,561Federal Trans it - Formul a Grants 20.507 CA-2019-001 - 2,058,393Federal Trans it - Formul a Grants 20.507 CA-2020-021-00 713,075 2,063,795Federal Trans it - Formul a Grants 20.507 CA-2020-073-00 2,185,035 11,467,476 Total Federal Trans it - Formula Grants 2,898,110 17,310,633 Bus and Bus Faciliti es Formula & Dis cretionary Program 20.526 CA-2017-062-00 - 1,076,373 Total Federal Trans it Clus ter 2,898,110 19,211,673
Pass ed through the California Department of Trans portation Highway Planning and Cons truction Cluster
Highway Planning and Construction 20.205 BRLS-5938(167) - 52,095 Highway Planning and Construction 20.205 TGHPLUL-5059(230) - 4,767,806Highway Planning and Construction 20.205 CML-5059(186) - 563,045Highway Planning and Construction 20.205 CML-5059(185) - 386,881Highway Planning and Construction 20.205 CML-5059(198) - 7,118Highway Planning and Construction 20.205 STPL-5059(205) - 1,412,477 #4..
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CITY OF MODESTO
SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS (continued)
FOR THE YEAR ENDED JUNE 30, 2021
The accompanying notes are an integral part of the Schedule of Expenditures of Federal Awards. 7 PassThrough to
Federal Grant Sub- Federal
CFDA No. Number recipients Expenditures
Federal Grantor/ Pass-through
Grantor/ Program or Cluster Title
Pass ed through the California Department of Trans portation (continued) Highway Planning and Cons truction Cluster (continued)
Highway Planning and Construction 20.205 STPL- 5059 (208) - $ 41,689 $ Highway Planning and Construction 20.205 CML-5059(217) - 1,407 Highway Planning and Construction 20.205 CML-5059(219) - 32,959 Highway Planning and Construction 20.205 STPL-5059(220) - 1,635,761Highway Planning and Construction 20.205 CML-5059(222) - 10,718Highway Planning and Construction 20.205 CML-5059(223) - 383,778 Highway Planning and Construction 20.205 ATPL-5059(233) - 73,897 Highway Planning and Construction 20.205 NH-P099(647) - 111,131 Highway Planning and Construction 20.205 HSIPL-5059(227) - 9,095Highway Planning and Construction 20.205 CML-5059(229) - 3,672Highway Planning and Construction 20.205 STPL-5059(234) - 14,255 Highway Planning and Construction 20.205 CML-5059(236) - 8,845 Highway Planning and Construction 20.205 HSIPL-5059(237) - 1,001Highway Planning and Construction 20.205 HSIPL-5059(238) - 18,448 Highway Planning and Construction 20.205 STPL-5059(242) - 12,067Highway Planning and Construction 20.205 CML-5059(245) - 458Highway Planning and Construction 20.205 CML-5059(246) - 369Highway Planning and Construction 20.205 CML-5059-228 - 12,840Highway Planning and Construction 20.205 CML-5059-235 - 21,870Highway Planning and Construction 20.205 CML-5059-240 - 15,057 Total Highway Planning and Construction Clus ter - 9,598,739 Pass ed through the California Office of Traffic Safety Highway Safety Clus ter
State and Community Highway Safety 20.600 PT20083 - 60,935 State and Community Highway Safety 20.600 PS20013 - 11,977State and Community Highway Safety 20.600 PT21110 - 50,352State and Community Highway Safety 20.600 PS21034 - 17,501 Total State and Community Highway Safety - 140,765
Minimum Penalties for Repeat Offenders for Driving While Intoxicated 20.608 PT20083 - 78,408 Minimum Penalties for Repeat Offenders for Driving While Intoxicated 20.608 PT21110 - 142,846 Total Minimum Penalties for Repeat Offenders for Driving While Intoxicated - 221,254 #4..
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CITY OF MODESTO
SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS (continued)
FOR THE YEAR ENDED JUNE 30, 2021
The accompanying notes are an integral part of the Schedule of Expenditures of Federal Awards. 8 PassThrough to
Federal Grant Sub- Federal
CFDA No. Number recipients Expenditures
Federal Grantor/ Pass-through
Grantor/ Program or Cluster Title
Pass ed through the California Office of Traffic Safety (continued) Highway Safety Clus ter (continued)
OTS Step Grant 20.616 PT20083 - $ 42,900 $
Total Highway Safety Cluster
TOTAL U.S. DEPARTMENT OF TRANSPORTATION 2,898,110 29,286,496 U.S. DEPARTMENT OF THE TREASURY
Pass ed through California Department of Finance
Coronavirus Relief Funding - County 21.019 606125051 - 2,745,524 Coronavirus Relief Funding - State 21.019 606125051 - 708,500 Total Coronavirus Relief Funding - 3,454,024
Emergency Rental As sis tance Program - American Rescue Plan Act 21.023 N/A 590,503 593,635 TOTAL U.S. DEPARTMENT OF THE TREASURY 590,503 4,047,659 U.S. DEPARTMENT OF HOMELAND SECURITY
Pass ed through California Office of Emergency Services (CalOES) Disas ter Grants - Public Assis tance Grant 97.036 FEMA-4308-DR-CA - 1,286,054 Disas ter Grants - Public Assis tance Grant 97.036 FEMA-4482-DR-CA - 42,421 Total Public Ass istance Grants - 1,328,475
TOTAL U.S. DEPARTMENT OF HOMELAND SECURITY - 1,328,475
TOTAL EXPENDITURES OF FEDERAL AWARDS 5,921,241 $ 40,892,495 $ #4..
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CITY OF MODESTO
NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
9 NOTE 1 – GENERAL
The accompanying Schedule of Expenditures of Federal Awards presents all the activity of all the federal award programs of the City of Modesto (the City) for the year ended June 30, 2021. The City reporting entity is defined in Note 1 to the City’s basic financial statements. Federal awards received directly from federal agencies as well as federal awards passed through other government agencies are included on the schedule.
NOTE 2 – BASIS OF ACCOUNTING & PRESENTATION
Consistent with the City’s method of filing federal financial reports, the accompanying Schedule of Expenditures of Federal Awards is prepared using the accrual basis method of accounting. The information in this schedule is presented in accordance with the requirements of Title 2 U.S., Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance).
Therefore, some of the amounts presented in this schedule may differ from amounts presented in, or used in the preparation of the basic financial statements. The amounts reported in the accompanying Schedule of Expenditures of Federal Awards agree, in all material respects, to amounts reported within the City’s financial statements.
NOTE 3 – RELATIONSHIP TO FEDERAL FINANCIAL REPORTS
Amounts reported in the accompanying schedule agree with the amounts reported in the related periodic federal financial reports.
NOTE 4 – CATALOG OF FEDERAL DOMESTIC ASSISTANCE (CFDA)
The CFDA numbers included in the accompanying Schedule of Expenditures of Federal Awards were determined based on the program name, review of the grant or contract information and the Office of Management and Budget’s Catalog of Federal Domestic Assistance.
NOTE 5 – PASS-THROUGH ENTITY IDENTIFYING NUMBERS
When Federal awards were received from a pass-through entity, the Schedule of Expenditures of Federal Awards show, if available, the identifying number assigned by the pass-through entity. When no identifying number is shown, the City has either determined that no identifying number is assigned for the program or the City was unable to obtain an identifying number from the pass-through entity.
NOTE 6 – INDIRECT COST RATE LIMITATION
The City does not use the 10 percent de minimis indirect cost rate. #4..
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CITY OF MODESTO
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
FOR THE YEAR ENDED JUNE 30, 2021
10 SECTION I – SUMMARY OF AUDITORS’ RESULTS
Financial Statements
Type of auditors' report issed: Unmodified
Internal control over financial reporting
● Material weakness identified? Yes X No
● Significant deficiency(ies) identified that are not
considered to be material weaknesses? Yes X No
Noncompliance material to financial statements noted? Yes X No Federal Awards
Internal control over major federal programs:
● Material weakness identified? Yes X No
● Significant deficiency(ies) identified that are not
considered to be material weaknesses? Yes X No
Noncompliance material to federal awards? Yes X No
Yes X No
Type of auditors' report issued on compliance for major Federal programs: Unmodified
Identification of major programs:
Name of Federal Program or Cluster
Emergency Solutions Grant Program
Home Investment Partnerships Program
Edward Byrne Memorial Justice Assistance Grant
Highway Planning and Construction Cluster
Disaster Grants - Public Assistance Grant
Dollar threshold used to distinguish
Between Type A and B programs: $750,000
Auditee qualified as a low risk auditee? Yes X No
CFDA Number:
14.218
97.036
Any audit findings disclosed that are required to be reported in accordance with 2CRF section 200.516(a).
21.023
20.205
14.231
14.239
16.738
CDBG - Entitlement Grants Cluster
Emergency Rental Assistance Program - American
Rescue Plan Act
#4..
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CITY OF MODESTO
SCHEDULE OF FINDINGS AND QUESTIONED COSTS (continued)
FOR THE YEAR ENDED JUNE 30, 2021
11 SECTION II – FINANCIAL STATEMENT FINDINGS
There are no financial statement findings to be reported in accordance with Governmental Auditing Standards.
SECTION III – FEDERAL AWARD FINDINGS
There are no federal award findings to be reported in accordance with the Uniform Guidance. #4..
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CITY OF MODESTO
SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED JUNE 30, 2020
12 SECTION II – FINANCIAL STATEMENT FINDINGS
Finding 2020-001 – Significant Deficiency
Accounts Payable
Criteria:
In accordance with accounting principles generally accepted in the United States of America, adequate internal controls should be implemented to ensure that all liabilities incurred by the City be recorded/accrued as of the fiscal reporting date and in the correct accounting reporting period.
Condition:
During our testing of accounts payable, we noted invoices for goods/services incurred prior to the end of the fiscal year were not accrued in the financial statements resulting in a material adjustment.
Cause of Condition:
Although the City’s accrual process resulted in the vast majority of the accruals being correctly accrued, the City unfortunately missed two material invoices which resulted in the material adjustment.
Effect of Condition:
The City’s financial statements required a material adjustment to ensure presentation in accordance with accounting principles generally accepted in the United States of America.
Recommendation:
We recommend that City put an additional level of review over the accrual process and implement additional testing over possible missed expenses and liabilities to ensure that the City captures and accrues all necessary invoices as of year-end.
Management’s Response:
Accounting Manager will meet with Accounts Payable staff on a bi-weekly basis after June 30th through the completion of the draft financials to identify invoices that should be accrued to the prior fiscal year. Accounts Payable staff will inform Accounting Manager of any large dollar invoices dated prior to the end of the fiscal year by a defined date to ensure Accounting Manager accrues the invoices properly. Additionally, prior to the start of the preparation of the financial reports, further review of all invoices processed subsequent to the end of the fiscal year will be completed to ensure the City captures and accrues all necessary invoices as of year-end.
Current Year Status:
Implemented.
SECTION III – FEDERAL AWARD FINDINGS
There were no federal award findings to be reported in accordance with the Uniform Guidance in the prior year. #4..
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