Agenda packet — Audit Committee, January 23, 2023 (part 3 of 3)

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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MODESTO – CERES FIRE PROTECTION AGENCY
NOTES TO FINANCIAL STATEMENTS (continued)
10 NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Governmental Fund Financial Statements (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 Agency reports one major governmental fund:

The General Fund is the primary operating fund and accounts for all financial resources of the Agency.

The Agency adopts annual appropriated budgets for its general revenue fund which is a major fund. A budgetary comparison statement has been provided for this fund to demonstrate compliance with the budgets. The budgetary comparison statement is presented on a budgetary basis which differs from generally accepted accounting principles in the method of accounting for accruals and encumbrances.

Budget: The budget for the General Fund is prepared on the cash and expenditures/encumbrances basis. Revenues are budgeted in the year receipt is expected; expenditures, which include encumbrances, are budgeted in the year that the applicable warrant requisitions are expected to be issued.

Annual budget requests are submitted by the Agency staff to the Agency’s Board of Directors for review. After public hearing, a budget is approved by the Agency’s Board of Directors, with a resolution adopting said budget. Copies of the approved budget are sent to all required agencies.

The General Fund budget is prepared within the limit on spending as regulated by Proposition 4 Appropriations Limitation. Unencumbered appropriations for annually budgeted funds lapse at year-end.

Proposition 4: The Proposition 4 Appropriations Limitation for the year ended June 30, 2022, was $1,333,526.

Cash and Investments: The Agency maintains its cash account with the City of Modesto as part of the cash and investment pool. The City of Modesto is restricted by Government Code Section 53635 pursuant to Section 53601 to invest in time deposits, U.S. government securities, state registered warrants, notes or bonds, State Treasurer’s investment pool, bankers’ acceptances, commercial paper, negotiable certificates of deposit, and repurchase or reverse repurchase agreements.

In accordance with GASB Statement No. 43, Accounting and Financial Reporting for Certain Investments and External Investment Pools, investments held by the City of Modesto are stated at fair value. The fair value of pooled investments is determined monthly and is based on current market prices received from the securities custodian.

The balance available for withdrawal is based on the accounting records maintained by the City of Modesto.

Property Tax: Secured property taxes attach as an enforceable lien on real property as of the 1st day of January.

Taxes are payable in two installments on November 1st and February 1st, and become delinquent if not paid before December 10th and April 10th. Unsecured property taxes are billed in one installment, are due March 15th, and become delinquent if not paid on or before August 31st. The County of Stanislaus bills and collects all property taxes and remits to the Agency its share of the 1% property tax allocation.

Employees’ Retirement Plan: The Agency no longer participates in the County of Stanislaus retirement plan since firefighters are paid by the cities of Modesto and Ceres. #1..
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MODESTO – CERES FIRE PROTECTION AGENCY
NOTES TO FINANCIAL STATEMENTS (continued)
11 NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 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 that affect the reported amounts of assets and liabilities and disclosure of contingent 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 those estimates.

Net Position: Net position represents the residual interest in the Agency’s assets after liabilities are deducted. In accordance with GASB Statement No. 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position, 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.

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 Agency 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 Agency did not have any nonspendable resources as of June 30, 2022. • 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 Agency did not have any restricted resources as of June 30, 2022. • Committed – Amounts constrained to specific purposes by the Agency itself, using its highest level of decision-making authority, the Board of Directors (Agency Board). To be reported as committed, amounts cannot be used for any other purpose unless the Agency Board takes the same highest-level action to remove or change the constraint. The Agency did not have any committed resources as of June 30, 2022. • Assigned – Amounts the Agency intends to use for a specific purpose. Intent can be expressed by the Agency or by an official or body to which the Agency Board delegates the authority. The Agency did not have any assigned resources as of June 30, 2022. • Unassigned – Amounts that are available for any purpose. The Agency did not have any unassigned resources as of June 30, 2022.

In circumstances when an expenditure is incurred for which committed, assigned, or unassigned fund balances are available, the Agency considers amounts to have been spent first out of committed funds then assigned funds, and finally unassigned funds, as needed, unless the Board has provided otherwise in its commitment or assignment actions.
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MODESTO – CERES FIRE PROTECTION AGENCY
NOTES TO FINANCIAL STATEMENTS (continued)
12 NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Governmental Accounting Standards Update: During the year ending June 30, 2022, the Agency implemented the following standards with no effect on the financial statements:

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. 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. 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.

GASB Statement No. 98 – The Annual Comprehensive Financial Report. The requirements of this statement are effective for reporting periods beginning after December 15, 2021.

Released GASB Statements to be implemented in future financial statements are as follows:

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. 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. 99 – Omnibus 2022. The requirements of this statement are effective for reporting periods beginning after June 15, 2022.

GASB Statement No. 100 – Accounting Changes and Error Corrections. The requirements of this statement are effective for reporting periods beginning after June 15, 2023.

GASB Statement No. 101 – Compensated Absences. The requirements of this statement are effective for reporting periods beginning after December 15, 2023.

Management has determined that no events require disclosure in accordance with accounting standards. These subsequent events have been evaluated through October 11, 2022, which is the date the financial statements were available to be issued.
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MODESTO – CERES FIRE PROTECTION AGENCY
NOTES TO FINANCIAL STATEMENTS (continued)
13 NOTE 2 – CASH AND INVESTMENTS
Cash and investments of the Agency 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 Agency’s 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 Agency does not have any deposits with financial institutions as of June 30, 2022.

Cash and investments as of June 30, 2022 are classified in the accompany financial statements as follows:

Statement of Net Position:

Cash and investments $ 260,056
Total cash and investments $ 260,056
Summary of Deposits:

Cash and investments as of June 30, 2022 consist of the following:

Deposits with City of Modesto:

Cash and investments Pool $ 260,056
Total cash and investments $ 260,056
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, 2022, the fair value of the Agency’s position in the pool is the same as the value of its pool shares.

NOTE 3 – DEFICIENCY OF EXPENDITURES OVER APPROPRIATIONS Deficiency of expenditures over appropriations for the year ended June 30, 2022 was as follows:

Expenditures Amount
General Fund:

Professional services $ (102)
NOTE 4 – CONTINGENCIES
Coronavirus Pandemic: Management has determined the events regarding the Novel Coronavirus (COVID-19) 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 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. A vaccination has been created and is being administered throughout the state, including the Agency’s service area. The ultimate impact of COVID-19 on the operations and finances of the Agency is unknown. #1..
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MODESTO – CERES FIRE PROTECTION AGENCY
NOTES TO FINANCIAL STATEMENTS (continued)
14 NOTE 5 – PRIOR PERIOD ADJUSTMENT
A prior period adjustment of $1,133 was recorded to the governmental activities and general fund beginning net position and fund balance, respectively, to account for a liability insurance renewal policy that was improperly reflected in the financial statements in the prior year. #1..
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MODESTO-CERES FIRE PROTECTION AGENCY

OTHER INFORMATION
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15 MODESTO-CERES FIRE PROTECTION AGENCY

SCHEDULE OF OFFICERS
JUNE 30, 2022
President Alex Terrazas - City of Ceres
City Manager
Secretary Valerie Fabela - City of Modesto
Executive Assistant
City of Modesto Joseph P. Lopez - City of Modesto
City Manager
City of Ceres Richard Collins - City of Ceres
Police Chief
City of Modesto Alan Ernst - City of Modesto
Fire Chief
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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 Board of Directors
Modesto–Ceres Fire Protection Agency
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 and major fund of the ModestoCeres Fire Protection Agency (the Agency), as of and for the year ended June 30, 2022, the budgetary comparison statement for the general fund, and the related notes to the financial statements, which collectively comprise the Agency’s basic financial statements, and have issued our report thereon dated October 11, 2022.

Report on Internal Control over Financial Reporting
In planning and performing our audit of the financial statements, we considered the Agency’s internal control over financial reporting (internal control) as a basis for designing 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 Agency’s internal control. Accordingly, we do not express an opinion on the effectiveness of the Agency’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 Agency’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.

Report on Compliance and Other Matters
As part of obtaining reasonable assurance about whether the Agency’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 financial statements.

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. #1..
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17 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 Agency’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 Agency’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose.

HUDSON HENDERSON & COMPANY, INC.

Fresno, California
October 11, 2022
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TUOLUMNE RIVER REGIONAL PARK

ANNUAL FINANCIAL REPORT
AND
INDEPENDENT AUDITORS’ REPORT

FOR THE YEAR ENDED
JUNE 30, 2022
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TABLE OF CONTENTS
Page
Independent Auditors’ Report.......................................................................................................................... 1 Management’s Discussion and Analysis........................................................................................................... 4 Basic Financial Statements:

Government-Wide Financial Statements:

Statement of Net Position................................................................................................................... 12 Statement of Activities........................................................................................................................ 13 Fund Financial Statements:

Balance Sheet – Governmental Funds ................................................................................................ 14 Reconciliation of the Balance Sheet – Governmental
Funds to the Statement of Net Position............................................................................................ 15 Statement of Revenues, Expenditures, and Changes in
Fund Balances - Governmental Funds............................................................................................... 16 Reconciliation of the Changes in Fund Balances of the
Governmental Funds with the Change in Net Position
Of Governmental Activities ............................................................................................................... 17 Notes to Financial Statements........................................................................................................................... 18 Required Supplementary Information:

Schedule of Revenues, Expenditures, and Changes in Fund Balance – General Fund – Budget and Actual ................................................................................... 27 Notes to the Required Supplementary Information.......................................................................................... 28 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...................................................................................................................... 29 Schedule of Findings and Responses................................................................................................................. 31 Schedule of Prior Year Findings and Responses................................................................................................ 32 #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 Tuolumne River Regional Park Commission,
The Board of Supervisors of the County of Stanislaus, California, and The City Councils of Modesto and Ceres, California
Tuolumne River Regional Park
Report on the Audit of the Financial Statements
Opinions
We have audited the accompanying financial statements of the governmental activities and each major fund of the Tuolumne River Regional Park Commission (the Park) as of and for the year ended June 30, 2022, and the related notes to the financial statements, which collectively comprise the Park’s basic financial statements as listed in the table of contents.

In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities and each major fund of the Park, as of June 30, 2022, and the respective changes in financial position for the year then ended in accordance with accounting principles generally accepted in the United States of America.

Basis for Opinions
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. Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the Park and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.

Change in Accounting Principle
As described in Note 9 to the financial statements, in 2022, the Park adopted new accounting guidance, GASB Statement No. 87, Leases. Our opinion is not modified with respect to this matter.

Responsibilities of Management for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America, and for 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.

In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Park’s ability to continue as a going concern for twelve months beyond the financial statement date, including any currently known information that may raise substantial doubt shortly thereafter.
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2 Auditors’ Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinions.

Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with generally accepted auditing standards and Government Auditing Standards will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.

In performing an audit in accordance with generally accepted auditing standards and Government Auditing Standards, we:
• Exercise professional judgment and maintain professional skepticism throughout the audit. • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. • Obtain an understanding of internal control relevant to the audit 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 Park’s internal control. Accordingly, no such opinion is expressed. • Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements. • Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Park’s ability to continue as a going concern for a reasonable period of time.

We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters that we identified during the audit.

Required Supplementary Information
Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis and budgetary comparison information on pages 4–11 and 27–28 be presented to supplement the basic financial statements. Such information is the responsibility of management and, 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 basic 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.
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3 Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated November 15, 2022, on our consideration of the Park’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 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 Park’s 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 Park’s internal control over financial reporting and compliance.

HUDSON HENDERSON & COMPANY, INC.

Fresno, California
November 15, 2022
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4 TUOLUMNE RIVER REGIONAL PARK
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE YEAR ENDED JUNE 30, 2022
This section of the annual financial report presents a discussion and analysis of financial performance of Tuolumne River Regional Park (the Park) during the past fiscal year. Please read it in conjunction with the Park’s financial statements, which follow this section.

FINANCIAL HIGHLIGHTS
The assets of the Park exceeded liabilities at the close of the 2022 fiscal year by $7,510,267 (net position). Of this amount, $7,166,897 is invested in capital assets, and $343,370 (unrestricted net position) may be used to meet ongoing obligations to citizens and creditors.
• Total net position decreased by $451,895 from current year activity. • As of June 30, 2022, the Park’s funds reported combined fund balance of $310,278, an increase of $98,975 in comparison with the prior year.
• At the end of the fiscal year, the General Fund had a fund balance of $58,183.

OVERVIEW OF THE FINANCIAL STATEMENTS
This discussion and analysis is intended to serve as an introduction to the Park’s basic financial statements. The basic financial statements are made up of three components: 1) Government-Wide Financial Statements, 2) Fund Financial Statements, and 3) Notes to the Basic Financial Statements. Required Supplementary Information is included in addition to the basic financial statements.

Government-Wide Financial Statements are designed to provide readers with a broad overview of Park finances, in a manner similar to a private-sector business.

The Statement of Net Position presents information on all assets and liabilities, with the difference between the two reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position of the Park is improving or deteriorating.

The Statement of Activities presents information showing how net position changed during the most recent fiscal year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will result in cash inflows or outflows in future fiscal periods.

The sole function of the Park is the administration of parks and recreation. It is principally supported by contributions from the three participating agencies of the Park joint powers agreement, the County of Stanislaus and the Cities of Modesto and Ceres, rather than by user fees, and thus, is considered a governmental activity.

The government-wide financial statements can be found on pages 12 and 13 of this report.

Fund Financial Statements provide evidence of accountability by demonstrating compliance with budgetary decisions. A fund is a group of related accounts that is used to maintain control over resources that have been segregated for specific activities or purposes stipulated by laws, regulations, or policies. Both Park funds are governmental funds.
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5 TUOLUMNE RIVER REGIONAL PARK
MANAGEMENT’S DISCUSSION AND ANALYSIS (continued)
FOR THE YEAR ENDED JUNE 30, 2022
Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental funds financial statements focus on near-term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a government’s near-term financing requirements.

Because the focus of governmental funds financial statements 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 funds balance sheet and the governmental funds statement of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities.

The Park maintains two individual governmental funds. Information is presented separately in the governmental funds balance sheet and in the governmental funds statement of revenues, expenditures, and changes in fund balances for both the General Fund and the Capital Projects Fund.

The governmental funds financial statements can be found on pages 14 through 17 of this report.

Notes to the Basic Financial Statements provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. The notes can be found on pages 18 through 26 of this report.

Required Supplementary Information presents a budgetary comparison schedule for the General Fund to demonstrate compliance with the budget. Required supplementary information can be found on pages 27 through 28 of this report.

GOVERNMENT-WIDE FINANCIAL ANALYSIS
As noted earlier, net position may serve over time as a useful indicator of a government’s financial position. Net position of the Park was $7,510,267 at the close of fiscal year 2022, compared with $7,962,162 as of June 30, 2021. #1..
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6 TUOLUMNE RIVER REGIONAL PARK
MANAGEMENT’S DISCUSSION AND ANALYSIS (continued)
FOR THE YEAR ENDED JUNE 30, 2022
Statement of Net Position – Governmental Activities
2022 2021
Current and other assets $ 1,584,042 $ 514,228
Capital assets 7,166,897 7,525,853
Total assets 8,750,939 8,040,081
Current and other liabilities 55,708 77,919
Total liabilities 55,708 77,919
Deferred inflows of resources
Leases 1,184,964 -
Total deferred inflows of resources 1,184,964 -
Net position
Net investment in capital assets 7,166,897 7,525,853
Unrestricted 343,370 436,309
Total net position $ 7,510,267 $ 7,962,162
The largest portion of net position, $7,166,897, is made up of the Park’s net investment in capital assets. The Park uses these assets to provide its parks and recreation services; consequently, they are not available for future spending.

Current and other assets increased by $1,069,814 or 208.04% primarily due to a change in the reporting for lease receivables brought about by the implementation of GASB 87. The items included in the report identifies future revenue from cell tower leases in the Park.

The resulting unrestricted net position is $343,370. This amount is the balance at year-end which may be used to meet the Park’s ongoing obligations.

The Park’s net position decreased by $451,895 during the current fiscal year. #1..
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7 TUOLUMNE RIVER REGIONAL PARK
MANAGEMENT’S DISCUSSION AND ANALYSIS (continued)
FOR THE YEAR ENDED JUNE 30, 2022
Statement of Activities – Governmental Activities
2022 2021
Revenues
Program revenues:

Charges for services $ 20,871 $ 24,059
Capital grants and contributions 18,035 195,336
Operating grants and contributions 408,800 385,526
General revenues:

Lease revenue 50,328 -
Interest revenue - leases 16,878 -
Other revenue 1,267 -
Investment earnings (loss) (6,732) (151)
Total revenues 509,447 604,770
Expenses
Parks and recreation 961,342 863,227
Change in net position (451,895) (258,457)
Net position, beginning of year 7,962,162 8,220,619
Net position, end of year $ 7,510,267 $ 7,962,162
The 2022 net position decreased by $451,895 which is mainly attributable to the overall decrease in grant revenue from capital projects. This can vary between fiscal years due to the number of projects that are active in the Park.

FINANCIAL ANALYSIS OF PARK FUNDS
As noted earlier, the Park uses fund accounting to ensure and demonstrate compliance with budgetary decisions.

Governmental funds. The parks and recreation function of the Park is recorded in the General and Capital Projects Funds. The focus of these governmental funds is to provide information on near-term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the Park’s financing requirements. In particular, unassigned fund balance may serve as a useful measure of net resources available for spending at the end of the fiscal year.

At June 30, 2022, the Park’s governmental funds reported a combined fund balance of $310,278, an increase of $98,975 in comparison with the prior year.

The General Fund is the chief operating fund of the Park. At June 30, 2022, the General Fund had a fund balance of $58,183, a decrease of $5,070 from the prior year. This decrease can be attributed to an increase in expenses for the Park, primarily in tree maintenance and staff time to complete large cleanups of the Park due to the lack of use and/or misuse of the Park.

General and Capital Projects funds revenues totaled $701,361 in fiscal year 2022, an increase of $116,543 or 19.93% from fiscal year 2021. The following table presents the revenues from various sources as well as increases or decreases from the prior year.
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8 TUOLUMNE RIVER REGIONAL PARK
MANAGEMENT’S DISCUSSION AND ANALYSIS (continued)
FOR THE YEAR ENDED JUNE 30, 2022
Revenues Classified by Source
Governmental Funds
Revenues by Source Amount
Percent of
Total Amount
Percent of
Total Amount Percent
Rents $ 20,871 2.98% $ 24,059 6.66% $ (3,188) -13.25%
Contributions by supporting agencies 408,800 58.29% 385,526 52.83% 23,274 6.04% Intergovernmental 209,949 29.93% 175,384 2.01% 34,565 19.71% Lease revenue 50,328 7.18% - 0.00% 50,328 0.00%
Interest revenue - leases 16,878 2.41% - 0.00% 16,878 0.00% Other (5,465) -0.79% 38.50% (151) (5,314) 3519.21%
$ 701,361 100.00% $ 584,818 100.00% 116,543 $ 19.93%
2022 2021 Change
The increase in revenues is mainly attributable to the increase of contributions by supporting agencies and lease revenue.

The following table presents expenditures by function compared to prior year amounts.

Expenditures by Function
Governmental Funds
Expenditures by Function Amount
Percent of
Total Amount
Percent of
Total Amount Percent
Parks and recreation $ 522,660 86.76% $ 417,348 63.87% $ 105,312 25.23% Capital Outlay 79,726 13.24% 236,038 36.13% (156,312) -66.22% $ 602,386 100.00% $ 653,386 100.00% $ (51,000) -7.81%
2022 2021 Change
Current expenditures for operations showed a decrease, primarily due to decreased project expenses (capital outlay) for the year, with a decrease in activity in active projects. Parks and Recreation expenses experienced an increase in expenses for the Park, primarily in tree maintenance and staff time to complete large cleanups of the Park due to the lack of use and/or misuse of the Park.
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9 TUOLUMNE RIVER REGIONAL PARK
MANAGEMENT’S DISCUSSION AND ANALYSIS (continued)
FOR THE YEAR ENDED JUNE 30, 2022
The current year changes in fund balances as compared to the prior year are presented in the following table:

Statement of Revenues, Expenditures, and Changes in Fund Balances Governmental Funds
2021
General
Fund
Capital
Projects
Fund
Total
Governmental
Funds
Total
Governmental
Funds
Revenues $ 491,412 $ 209,949 $ 701,361 $ 584,818
Expenditures (496,482) (105,904) (602,386) (653,386)
Changes in fund balances (5,070) 104,045 98,975 (68,568) Fund Balances,
Beginning of Year 63,253 148,050 211,303 279,871
Fund Balance,
End of Year $ 58,183 $ 252,095 $ 310,278 $ 211,303
2022
The fund balance of the Park’s General Fund decreased by $5,070 during the fiscal year, compared to the final budget anticipated decrease of $1,062. The key factor was an increase in expenses for maintenance. During the fiscal year, tree maintenance that had not been able to be completed in prior fiscal years was finished. In addition, in the prior fiscal year the park was often not reserved due to COVID related restrictions on organized used. With many of those restrictions lifted, ballfields, buildings and picnic areas were available resulting in an increase in staff costs to prepare for and clean up after reservations.

GENERAL FUND BUDGETARY HIGHLIGHTS
Actual revenues were higher than final budgetary estimates by $8,612. This is mainly attributable to a decrease in rental revenue, which was offset by an increase in contributions from supporting agencies. Actual expenditures were $13,682 higher than final budgetary estimates with a majority focused on maintenance of the Park. Large cleanups of the Park were necessary due to the lack of use and/or misuse of the Park during prior fiscal years, when the park had some closures due to COVID related restrictions.
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10 TUOLUMNE RIVER REGIONAL PARK
MANAGEMENT’S DISCUSSION AND ANALYSIS (continued)
FOR THE YEAR ENDED JUNE 30, 2022

CAPITAL ASSETS
The Park’s net investment in capital assets as of June 30, 2022, amounted to $7,166,897 (net of accumulated depreciation). This investment in capital assets includes land, buildings and other improvements, and construction in progress. The investment in capital assets decreased by $358,956, or 4.8% over the prior year. The major components of this change were:

Depreciation expense $ (438,682)
Capital asset additions 79,822
Capital asset adjustments (96)
Total $ (358,956)
Additional information on the Park’s capital assets can be found in Note 4 on page 24 of this report.

ECONOMIC FACTORS AND NEXT YEAR’S BUDGET
In early June 2022, the TRRP Commission approved a budget for FY 2022/23 that included ran increase in the contributions from Stanislaus County and City of Modesto. This budget does not include a contribution from the City of Ceres.

While it was anticipated for rental revenues to continue to recover during FY 2022/23 to pre-pandemic levels, in July 2022 a large fire heavily damaged the American Legion Hall in the Park. Currently, the damage to the hall is still being assessed and it is unknown if the Hall can be restored or if it will need to be demolished. It is anticipated that additional expenses will be incurred to secure the site during the current fiscal year, and that revenues will be less than expected due to loss of revenue for canceled reservations.

The City of Modesto’s Parks, Recreation, and Neighborhoods Department began a project to plan for the future development of the Park when the JPA of the City of Modesto, City of Ceres, and Stanislaus County adopted the Park Master Plan in December 2001. In April 2005, staff began work on the Precise Plan and the Finding of Conformance to the MEIR for the Gateway Parcel project, and in September 2005, the City Council approved the Precise Plan for the Gateway Parcel of the Park. Since then, three phases of restoration work, totaling approximately 63 acres, have been completed.

Staff and the Park Commission continue to seek funding from all appropriate grant sources. During the past few years, the Park received more than $6 million dollars in grant funding for projects such as the Carpenter Road Area (Bellenita) Soccer Complex, the River Pavilion and Learning Theatre at Legion Park, and the TRRP Riverwalk Trail from the Gateway Parcel to Neece Drive. During FY 2021/22, the Park received additional funding from the City of Modesto’s American Rescue Plan Act allocation in the amount of $750,000. This funding will be used for additional park maintenance and to complete projects such as the Park Master Plan Update, Security Cameras and other park renovations.

The three agencies that make up the Park’s JPA continue to work collaboratively to ensure that the vision for this urban river corridor becomes a reality.
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11 TUOLUMNE RIVER REGIONAL PARK
MANAGEMENT’S DISCUSSION AND ANALYSIS (continued)
FOR THE YEAR ENDED JUNE 30, 2022

REQUESTS FOR MORE INFORMATION
This financial report is designed to provide a general overview of the Park’s finances for those interested in its finances. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to the City of Modesto, Accounting Division, P.O. Box 642, Modesto, California 95353.
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The accompanying notes are an integral part of the financial statements. 12 TUOLUMNE RIVER REGIONAL PARK

STATEMENT OF NET POSITION
JUNE 30, 2022
Governmental
Activities
ASSETS
Cash and investments $ 345,400
Due from other governments 23,884
Lease receivable 1,214,758
Capital assets:

Nondepreciable 3,024,744
Depreciable, net 4,142,153
Total Assets 8,750,939

LIABILITIES
Accounts payable 55,708
Total Liabilities 55,708

DEFERRED INFLOWS OF RESOURCES
Leases 1,184,964
Total Deferred Inflows of Resources 1,184,964

NET POSITION
Net investment in capital assets 7,166,897
Unrestricted 343,370
Total Net Position $ 7,510,267
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The accompanying notes are an integral part of the financial statements. 13 TUOLUMNE RIVER REGIONAL PARK

STATEMENT OF ACTIVITIES
FOR THE YEAR ENDED JUNE 30, 2022
Expenses Charges for Services
Capital Grants and
Contributions
Operating Grants
and Contributions Governmental Activities
$ 961,342 $ 20,871 $ 18,035 $ 408,800 $ (513,636)
$ 961,342 $ 20,871 $ 18,035 $ 408,800 (513,636)
Lease revenue 50,328
Interest revenue - leases 16,878
1,267
Investment earnings (loss) (6,732)
61,741
(451,895)
7,962,162
$ 7,510,267
Program Revenues
Net (Expense) and
Revenues and Changes
in Net Position
Net Position, Beginning of Year
Net Position, End of Year
Functions/Programs
Governmental Activities:

Parks and recreation
Total Governmental
Activities
General Revenues
Other revenue
Total General Revenues
Change in Net Position
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The accompanying notes are an integral part of the financial statements. 14 TUOLUMNE RIVER REGIONAL PARK
BALANCE SHEET – GOVERNMENTAL FUNDS
JUNE 30, 2022
General
Fund
Capital
Projects
Fund
Total
Governmental
Funds
ASSETS
Cash and investments $ 76,167 $ 269,233 $ 345,400
Due from other governments - 23,884 23,884
Lease receivable 1,214,758 - 1,214,758
Total Assets $ 1,290,925 $ 293,117 $ 1,584,042

LIABILITIES
Accounts payable $ 35,197 $ 20,511 $ 55,708
Unearned income 12,581 - 12,581
Total Liabilities 47,778 20,511 68,289

DEFERRED INFLOWS OF RESOURCES
Unavailable revenues - 20,511 20,511
Leases 1,184,964 - 1,184,964
Total Deferred Inflows of Resources 1,184,964 20,511 1,205,475

FUND BALANCE
Committed - 252,095 252,095
Unassigned 58,183 - 58,183
Total Fund Balances 58,183 252,095 310,278
Total Liabilities, Deferred Inflows of Resources,
and Fund Balances $ 1,290,925 $ 293,117 $ 1,584,042
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The accompanying notes are an integral part of the financial statements. 15 TUOLUMNE RIVER REGIONAL PARK
RECONCILIATION OF THE BALANCE SHEET – GOVERNMENTAL FUNDS

TO THE STATEMENT OF NET POSITION
JUNE 30, 2022
Total Fund Balances - Governmental Funds $ 310,278
33,092
7,166,897
Net Position of Governmental Activities $ 7,510,267
Revenues not available for current-period expenditures are deferred in governmental funds, but are considered earned in the Statement of Net Position.

Capital assets used in governmental activities are not current assets or financial resources and, therefore, are not reported in the governmental funds.

Amounts reported for governmental activities in the Statement of Net Position are different from those reported in the governmental funds because of the following:
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The accompanying notes are an integral part of the financial statements. 16 TUOLUMNE RIVER REGIONAL PARK

STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES

GOVERNMENTAL FUNDS
FOR THE YEAR ENDED JUNE 30, 2022
General
Fund
Capital
Projects
Fund
Total Governmental
Funds

REVENUES
Rents $ 20,871 $ - $ 20,871
Operating grants and contributions 408,800 - 408,800
Intergovernmental - 209,949 209,949
Lease revenue 50,328 - 50,328
Interest revenue - leases 16,878 - 16,878
Investment earnings (loss) (6,732) - (6,732)
Other 1,267 - 1,267
Total Revenues 491,412 209,949 701,361

EXPENDITURES
Contractual services 481,209 26,178 507,387
Materials and supplies 1,635 - 1,635
Insurance and taxes 13,638 - 13,638
Capital outlay - 79,726 79,726
Total Expenditures 496,482 105,904 602,386
Net Change in Fund Balances (5,070) 104,045 98,975
Fund Balances, Beginning of Year 63,253 148,050 211,303 Fund Balances, End of Year $ 58,183 $ 252,095 $ 310,278 #1..
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The accompanying notes are an integral part of the financial statements. 17 TUOLUMNE RIVER REGIONAL PARK

RECONCILIATION OF THE CHANGES IN FUND BALANCES OF THE GOVERNMENTAL FUNDS WITH THE CHANGE

IN NET POSITION OF GOVERNMENTAL ACTIVITIES
FOR THE YEAR ENDED JUNE 30, 2022
Net change in fund balances of the Governmental Funds $ 98,975 (191,914)
Capital outlay expenditures 79,726
Depreciation expense (438,682)
Net capital outlay (depreciation) expenditures (358,956) Change in Net Position of Governmental Activities $ (451,895) Revenues earned in the Statement of Activities in a previous year that did not provide current financial resources in that year were not reported as revenue in the governmental funds until they provided current financial resources this year.

Governmental funds report capital outlay expenditures. However, in the Statement of Activities, the cost of those assets are capitalized and allocated over their estimated useful lives and reported as depreciation expense.

Amounts reported for governmental activities in the Statement of Activities are different from those reported in the governmental funds because of the following:
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TUOLUMNE RIVER REGIONAL PARK

NOTES TO FINANCIAL STATEMENTS
18 NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization: Tuolumne River Regional Park (the Park) was founded in 1972 by an agreement between the County of Stanislaus (the County) and the cities of Modesto and Ceres (the Cities). The agreement provides for financing, development, and maintenance of the Park facilities. The Park includes approximately 180 developed and 330 undeveloped acres with group picnic areas, play equipment lots, ballfields, and Legion Hall. Rent is generated from public use of these facilities. The County and Cities provide additional operating funds. The Park is governed by the Tuolumne River Regional Park Committee, which consists of two members of the County’s Board of Supervisors, two members of the City of Modesto’s City Council, and one member of the City of Ceres’ City Council. Financial transactions initiated by the Park are processed and accounted for by the City of Modesto’s financial system.

Reporting Entity: The Park’s financial statements include the accounts of all Park operations. The criteria for including organizations as component units within the Park’s reporting entity, as set forth in Section 2100 of the Governmental Accounting Standards Board’s (GASB) Codification of Government Accounting and Financial Reporting Standards, include whether:
• the Park is legally separate (can sue and be sued in their own name). • the Park holds the corporate powers of the organization. • the Park appoints a voting majority of the organization’s board. • the Park can impose its will on the organization.
• there is fiscal dependency by the organization on the Park based on the criteria that the Park has no component units.

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 Park’s activities. For the most part, the effect of interfund activity has been removed from these statements. Governmental activities normally are supported by contributions, rents, and intergovernmental revenues. 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.

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.

The Statement of Activities demonstrates the degree to which the direct expenses are offset by program revenues.

Direct expenses are those that are clearly identifiable with the parks and recreation function. Program revenues include 1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by the parks and recreation function and 2) grants and contributions that are restricted to meeting the operational requirements of the parks and recreation function. Revenues that are not classified as program revenues, including investment earnings and other revenues, are reported as general revenues. Separate financial statements are provided for governmental funds. #1..
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TUOLUMNE RIVER REGIONAL PARK
NOTES TO FINANCIAL STATEMENTS (continued)
19 NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Measurement Focus, Basis of Accounting and Financial Statement Presentation (continued): Governmental fund financial statements (i.e., Balance Sheet and Statement of Revenues, Expenditures, and Changes in Fund Balances) 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.

For this purpose, the Park considers revenues to be available if they are collected within 180 days of the end of the current fiscal period. 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.

Major individual governmental funds are reported as separate columns in the fund financial statements. 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 Balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities.

The Park reports two major governmental funds:

The General Fund is the primary operating fund and accounts for all financial resources of the Park.

The Capital Projects Fund is used to account for financial resources restricted for specific purposes.

The Park adopts annual appropriated budgets for its General Fund, which is a major fund. A budgetary comparison schedule has been provided for this fund to demonstrate compliance with these budgets. The budgetary comparison schedule is presented on a budgetary basis which differs from generally accepted accounting principles in the method of accounting for accruals and encumbrances.

Annual budget requests are submitted by the Park’s staff to the Park’s Board of Directors for review. After public hearing, a budget is approved by the Park’s Board of Directors, with a resolution adopting said budget. Copies of the approved budget are sent to all required agencies.

Cash and Investments: The Park maintains its cash account with the City of Modesto as part of the cash and investment pool. The City of Modesto is restricted by Government Code Section 53635 pursuant to Section 53601 to invest in time deposits, U.S. government securities, state registered warrants, notes or bonds, State Treasurer’s investment pool, bankers’ acceptances, commercial paper, negotiable certificates of deposit, and repurchase or reverse repurchase agreements.

The balance available for withdrawal is based on the accounting records maintained by the City of Modesto. #1..
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TUOLUMNE RIVER REGIONAL PARK
NOTES TO FINANCIAL STATEMENTS (continued)
20 NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Due From Other Governments: Grant revenues and contributions are recorded as receivables in the funds when they are susceptible to accrual (i.e. when all eligibility requirements have been met and deemed available per the Park’s revenue recognition policies) and not yet received as of year-end. The total amount due from governments for grants and contributions at June 30, 2022 is $23,884. Management believes all amounts are fully collectible, and as such no allowance has been recorded against the due from other governments balance as of June 30, 2022. Additionally, there was no allowance for doubtful accounts.

Capital Assets: Capital assets acquired are recorded at cost or estimated cost where cost is not available. Donated or contributed capital assets are recorded at estimated fair value on the date received. Capital assets are defined by the Park as assets with an initial, individual cost of more than $5,000 and an estimated useful life in excess of two years. The costs of normal maintenance and repairs are charged to operations as incurred. Improvements are capitalized and depreciated over the remaining useful lives of the related capital assets, as applicable.

Depreciation of capital assets is computed using the straight-line method applied over the estimated useful lives of the assets as follows:

Buildings: 30 Years
Improvements: 20 Years
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 Park 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 Park that is applicable to a future reporting period.

In addition to liabilities, the Statement 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 Park that is applicable to a future reporting period. Deferred inflows reported by the Park consist of unearned deferred assessments that have been billed as of year-end, but not collected.

Risk Management: The Park 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 Park participates in the City of Modesto’s insurance pool to mitigate the risk of loss and contributes its pro-rata share of estimated losses. The City of Modesto’s insurance pool does not maintain separate records for estimated outstanding liabilities, including incurred but not reported claims. Refer to the City of Modesto’s Annual Comprehensive Financial Report for further information related to the insurance pool. Additional insurance is purchased for special events when certain Park facilities are rented to the public.

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 that affect the reported amounts of assets and liabilities and disclosure of contingent 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 those estimates.

Lease Receivable: The Park’s lease receivable is measured at the present value of lease payments expected to be received during the lease term. There are no variable components under the lease agreement. A deferred inflow of resources is recorded for the lease. The deferred inflow of resources is recorded at the initiation of the lease in an amount equal to the initial recording of the lease receivable. The deferred inflow of resources is amortized on a straight-line basis over the term of the lease.
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TUOLUMNE RIVER REGIONAL PARK
NOTES TO FINANCIAL STATEMENTS (continued)
21 NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Net Position: Net position represents the residual interest in the Park’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.

Nonspendable – Amounts that are not in spendable form (such as inventory) or are required to be maintained intact. The Park did not have any nonspendable resources as of June 30, 2022.

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 Park did not have any restricted resources as of June 30, 2022.

Committed – Amounts constrained to specific purposes by the Park itself, using its highest level of decisionmaking authority (Park’s Commission). To be reported as committed, amounts cannot be used for any other purpose unless the Park’s Commission takes the same highest-level action to remove or change the constraint.

The Park had $252,095 as committed resources as of June 30, 2022.

Assigned – Amounts the Park intends to use for a specific purpose. Intent can be expressed by the Park or by an official or body to which the Board of Supervisors delegates the authority. The Park did not have any assigned resources as of June 30, 2022.

Unassigned – Amounts that are available for any purpose. $58,183 of the Park’s resources were considered unassigned as of June 30, 2022.

In circumstances when an expenditure is incurred for which restricted, committed, assigned, or unassigned fund balances are available, the Park considers amounts to have been spent first out of restricted funds then committed funds, and finally assigned and unassigned funds, as needed, unless the Park Board has provided otherwise in its commitment or assignment actions.
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TUOLUMNE RIVER REGIONAL PARK
NOTES TO FINANCIAL STATEMENTS (continued)
22 NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Governmental Accounting Standards Update: During the year ending June 30, 2022, the Park implemented the following standards:

GASB Statement No. 98 – The Annual Comprehensive Financial Report. The requirements of this statement are effective for reporting periods beginning after December 15, 2021.

Released GASB Statements to be implemented in future financial statements are as follows:

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. 99 – Omnibus 2022. The requirements of this statement are effective for reporting periods beginning after June 15, 2022.

GASB Statement No. 100 – Accounting Changes and Error Corrections. The requirements of this statement are effective for reporting periods beginning after June 15, 2023.

GASB Statement No. 101 – Compensated Absences. The requirements of this statement are effective for reporting periods beginning after December 15, 2023.

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 noted in Note 10 requires disclosure in accordance with accounting standards. These subsequent events have been evaluated through November 15, 2022, which is the date the financial statements were available to be issued.
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TUOLUMNE RIVER REGIONAL PARK
NOTES TO FINANCIAL STATEMENTS (continued)
23 NOTE 2 – CASH AND INVESTMENTS
Cash and investments of the Park 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 Park’s 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 Park does not have any deposits with financial institutions as of June 30, 2022.

Cash and investments as of June 30, 2022 are classified in the accompany financial statements as follows:

Statement of Net Position:

Cash and investments $ 345,400
Total cash and investments $ 345,400
Summary of Deposits:

Cash and investments as of June 30, 2022 consist of the following:
$ 345,400
Total cash and investments $ 345,400
Deposits with City of Modesto
Cash and investments pool
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, 2022, the fair value of the Park’s position in the pool is the same as the value of its pool shares.

NOTE 3 – LEASE RECEIVABLE
On December 7, 2020, the Park (the lessor) and Vertical Bridge Development, LLC (the lessee) entered into a land lease agreement for the purpose of erecting, installing, operating, and maintaining radio and communications facilities. The initial lease term will be for five years with a monthly rental payment of $2,000 and $250 for each additional broadband carrier. The lease agreement will automatically renew for five additional five-year terms (extension term). Monthly rent will increase by 2% annually on each anniversary of the commencement date. Lease revenue recognized under the lease agreement was $14,582 for the year ended June 30, 2022. Interest revenue recognized under the lease agreement was $10,467 for the year ended June 30, 2022.

On April 16, 2015, the Park (the lessor) and Sacramento-Valley Limited Partnership, d/b/a Verizon Wireless (the lessee) entered into a land lease agreement for the purpose of constructing, maintaining, repairing, and operating a communications facility. The initial lease term will be for five years with a monthly rental payment of $1,700. The lease agreement will automatically renew for four additional five-year terms (extension term). Monthly rent will increase by 2.5% annually on each anniversary of the commencement date. Lease revenue recognized under the lease agreement was $35,746 for the year ended June 30, 2022. Interest revenue recognized under the lease agreement was $6,411 for the year ended June 30, 2022.
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TUOLUMNE RIVER REGIONAL PARK
NOTES TO FINANCIAL STATEMENTS (continued)
24 NOTE 3 – LEASE RECEIVABLE (continued)
Future minimum lease and interest payments to be received are as follows:

Year Ending
June 30 Principal Interest Total
2023 $ 30,259 $ 18,016 $ 48,275
2024 31,798 17,552 49,350
2025 33,381 17,063 50,444
2026 35,017 16,552 51,569
2027 36,708 16,015 52,723
2028-2032 210,719 71,096 281,815
2033-2037 261,176 53,478 314,654
2038-2042 233,583 33,163 266,746
2043-2047 167,193 19,689 186,882
2048-2052 174,924 6,053 180,977
$ 1,214,758 $ 268,677 $ 1,483,435
NOTE 4 – CAPITAL ASSETS
Capital asset activity for the year ended June 30, 2022, was as follows:

Beginning Balance Additions
Deletions/
Adjustments Ending Balance
Capital assets, not being depreciated:

Land $ 2,528,566 $ - -$ $ 2,528,566
Construction in progress 416,452 79,822 (96) 496,178
Total capital assets not being depreciated 2,945,018 79,822 (96) 3,024,744 Capital assets, being depreciated:

Buildings 455,935 - - 455,935
Improvements 10,689,250 - - 10,689,250
Total capital assets, being depreciated 11,145,185 - - 11,145,185 Less accumulated depreciation for:

Buildings (420,526) (1,424) - (421,950)
Improvements (6,143,824) (437,258) - (6,581,082)
Total accumulated depreciation (6,564,350) (438,682) - (7,003,032) Total capital assets, being depreciated, net 4,580,835 (438,682) - 4,142,153 Capital assets, net $ 7,525,853 $ (358,860) $ (96) $ 7,166,897 Depreciation expense for the year ended June 30, 2022 was $438,682. #1..
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TUOLUMNE RIVER REGIONAL PARK
NOTES TO FINANCIAL STATEMENTS (continued)
25 NOTE 5 – RELATED PARTY TRANSACTIONS
The Park reimburses the City of Modesto for administrative and other costs incurred by the City of Modesto on the Park’s behalf. During the 2022 fiscal year, contractual service expenditures included $136,763 of the City of Modesto’s payroll costs that were allocated to the Park.

NOTE 6 – INTERFUND TRANSACTIONS
Interfund transactions are reported as either loans, services provided, reimbursements, or transfers. Loans are reported as interfund receivables and payables, as appropriate, and are subject to elimination upon consolidation.

Services provided, deemed to be at market or near market rates, are treated as revenues and expenditures/expenses. Reimbursements occur when a fund incurs a cost, charges the appropriate benefitting fund, and reduces its related costs as a reimbursement. All other interfund transactions are treated as transfers. Transfer amounts of governmental or proprietary funds are netted as part of the reconciliation to the government-wide financial statements.

The Park had no transfers in/transfers out for the year ended June 30, 2022.

NOTE 7 – DEFICIENCY OF EXPENDITURES OVER APPROPRIATIONS For the year ended June 30, 2022, expenditures exceeded appropriations as follows:

Expenditures Amount
General Fund:

Contractual services $ (14,174)
Materials and supplies (135)
NOTE 8 – CONTINGENCIES
Coronavirus Pandemic: Management has determined the events regarding the novel coronavirus (COVID-19) 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 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 Park’s service area.

The ultimate impact of COVID-19 on the operations and finances of the Park is unknown.

NOTE 9 – CHANGE IN ACCOUNTING PRINCIPLE
GASB Statement No. 87, Leases, establishes specific criteria used to account for contracts that meets the definition of a lease. Implementation of GASB Statement No. 87 requires lessee to recognize a lease liability and an intangible right-to-use asset, and lessor to recognize a lease receivable and a deferred inflow of resources. The Statement is to enhance the relevance and consistency of information about governments’ leasing activities.

As of June 30, 2022, the District had two leases that meets the criteria of GASB Statements No. 87 and the Park has implemented the Statement accordingly. The Statement is applied retroactively and the financial statements are restated for all prior periods presented. As of June 30, 2022, the Park recognized a lease receivable of $1,214,758 and deferred inflow of resources of $1,184,964 for the leases in which the Park is a lessor. #1..
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TUOLUMNE RIVER REGIONAL PARK
NOTES TO FINANCIAL STATEMENTS (continued)
26 NOTE 10 – SUBSEQUENT EVENT
On July 21, 2022, a fire severely damaged the American Legion Hall (the Hall) that is located in the Park. It is anticipated the remaining structure cannot be repaired and will need to be completely removed. The fire remains under investigation, though investigators have said it may have been started by a homeless individual. The Hall is currently unusable and all future event reservations have been canceled.

The Hall is the main source of room rental income for the Park, which totaled approximately $14,000 in FY22. It is anticipated the Park will receive close to $2 million related to the insurance claim for the Hall. There will also be up to $500,000 in expenses to clean up and demolish the building. There has not been a decision made on the future of the Hall, whether it should be rebuilt or not.
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TUOLUMNE RIVER REGIONAL PARK

REQUIRED SUPPLEMENTARY INFORMATION
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27 TUOLUMNE RIVER REGIONAL PARK
SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE – GENERAL FUND – BUDGET AND ACTUAL
FOR THE YEAR ENDED JUNE 30, 2022
Original Final

REVENUES
Rents $ 74,000 $ 74,000 $ 20,871
Operating grants and contributions 408,800 408,800 408,800 Lease revenue - - 50,328
Interest revenue - leases - - 16,878
Investment earnings (loss) - - (6,732)
Other - - 1,267
Total Revenues 482,800 482,800 491,412

EXPENDITURES
Contractual services 467,055 467,035 481,209
Materials and supplies 1,500 1,500 1,635
Insurance and taxes 21,145 14,265 13,638
Total Expenditures 489,700 482,800 496,482

OTHER FINANCING SOURCES (USES)
Transfers out - (1,062) -
Total Other Financing Sources (Uses) - (1,062) -
Changes in Fund Balance $ (6,900) $ (1,062) (5,070)
Fund Balance, Beginning of Year 63,253
Fund Balance, End of Year $ 58,183
8,612
Budgeted Amounts
Actual Amounts
Variance With
Final Budget
1,267
-
$ (53,129)
(6,732)
50,328
16,878
$ (6,132)
(14,174)
(135)
627
(13,682)
(1,062)
(1,062)
#1..
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TUOLUMNE RIVER REGIONAL PARK

NOTES TO THE REQUIRED SUPPLEMENTARY INFORMATION
28 NOTE 1 – BUDGETS AND BUDGETARY ACCOUNTING
Tuolumne River Regional Park (the Park) operates under the general laws of the State of California and annually adopts a budget for its General Fund to be effective July 1 the ensuing fiscal year. The budget must be approved by each of the legislative bodies of the parties to the joint powers agreement. From the effective date of the budget, which is adopted and controlled at the fund level, the amounts stated therein as proposed expenditures become appropriations. The Park may amend the budget by approval from each of the legislative bodies of the parties to the agreement during the fiscal year. The budget for the General Fund is prepared on the cash and expenditures/encumbrance basis. Revenues are budgeted in the year receipt is expected; expenditures, which include encumbrances, are budgeted in the year that the applicable warrant requisitions are expected to be issued.

There were no encumbrances outstanding as of June 30, 2022, so the actual budgetary-basis expenditures are the same as the actual GAAP-basis expenditures.
#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 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 Tuolumne River Regional Park Commission,
The Board of Supervisors of the County of Stanislaus, California, and The City Councils of Modesto and Ceres, California
Tuolumne River Regional Park
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 and each major fund of the Tuolumne River Regional Park (the Park) as of and for the year ended June 30, 2022, and the related notes to the financial statements, which collectively comprise the Park’s basic financial statements, and have issued our report thereon dated November 15, 2022.

Report on Internal Control over Financial Reporting
In planning and performing our audit of the financial statements, we considered the Park’s internal control over financial reporting (internal control) as a basis for designing 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 Park’s internal control. Accordingly, we do not express an opinion on the effectiveness of the Park’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 or significant deficiencies may exist that were not identified.
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30 Report on 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 financial statements.

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 Park’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose.

HUDSON HENDERSON & COMPANY, INC.

Fresno, California
November 15, 2022
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31 TUOLUMNE RIVER REGIONAL PARK

SCHEDULE OF FINDINGS AND RESPONSES
FOR THE YEAR ENDED JUNE 30, 2022
There were no current year financial statement findings to be reported in accordance with Government Auditing Standards.
#1..
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32 TUOLUMNE RIVER REGIONAL PARK

SCHEDULE OF PRIOR YEAR 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.

Current Year Status:

Implemented
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33 TUOLUMNE RIVER REGIONAL PARK
SCHEDULE OF PRIOR YEAR 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.

Current Year Status:

Implemented.
#1..
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CITY OF MODESTO

TRANSPORTATION DEVELOPMENT ACT FUNDS

FINANCIAL STATEMENTS
WITH
INDEPENDENT AUDITORS’ REPORT

FOR THE YEAR ENDED
JUNE 30, 2022
#1..
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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 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 ................................................................................................................... 18 #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 Audit of the Financial Statements
Opinions
We have audited the accompanying financial statements of the governmental activities, business activities and major funds 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, 2022, 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.

In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, business activities and major funds of the Transportation Development Act Funds, as of June 30, 2022, 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.

Basis for Opinions
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. Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the Transportation Development Act Funds and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.

Emphasis of Matter
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, 2022, 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
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, 2021, from which such summarized information was derived. We have previously audited the 2021 financial statements, and we expressed an unmodified audit opinion on the financial statements in our report dated November 24, 2021. #1..
- 617 -
2 In our opinion, the summarized comparative information presented herein as of and for the year ended June 30, 2021, is consistent, in all material respects, with the audited financial statements from which it has been derived.

In performing an audit in accordance with generally accepted auditing standards and Government Auditing Standards, we:
• Exercise professional judgment and maintain professional skepticism throughout the audit. • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. • Obtain an understanding of internal control relevant to the audit 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 Transportation Development Act Funds’ internal control. Accordingly, no such opinion is expressed. • Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements. • Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Transportation Development Act Funds’ ability to continue as a going concern for a reasonable period of time.

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.
#1..
- 618 -
3 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 8, 2022, 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.

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 8, 2022
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- 619 -
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, 2022
(with comparative totals as of June 30, 2021)
NonMotorized
Streets
and Roads 2022 2021
ASSETS
Cash and investments $ 1,496,567 $ 238,274 $ 1,734,841 $ 1,467,398 Interest receivable - - - 2,454
Due from other governments - - - 189,759
Total Assets $ 1,496,567 $ 238,274 $ 1,734,841 $ 1,659,611

LIABILITIES
Unearned revenue $ 1,494,791 $ 238,274 $ 1,733,065 $ 1,657,835

FUND BALANCES
Restricted 1,776 - 1,776 1,776
Total Liabilities and
Fund Balances $ 1,496,567 $ 238,274 $ 1,734,841 $ 1,659,611 Totals
#1..
- 620 -
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, 2022
(with comparative totals for the year ended June 30, 2021) NonMotorizedStreets
and Roads 2022 2021

REVENUES
Intergovernmental:

Local transportation funds $ 1,101 $ 427,374 $ 428,475 $ 286,083 Interest 665 - 665 11,898
Change in fair value of investments - - - (12,094)
Other - - - 14
Total Revenues 1,766 427,374 429,140 285,901

EXPENDITURES
Maintenance and supplies 1,058 - 1,058 330
Total Expenditures 1,058 - 1,058 330
Excess (Deficiency) of Revenues
Over (Under) Expenditures 708 427,374 428,082 285,571

OTHER FINANCING SOURCES (USES)
Transfers:

Out to other funds of the City (708) (427,374) (428,082) (285,569) Total Other Financing
Sources (Uses) (708) (427,374) (428,082) (285,569)
Changes in fund balances - - - 2
Fund Balances, Beginning of Year 1,776 - 1,776 1,774
Fund Balances, End of Year $ 1,776 -$ $ 1,776 $ 1,776
Totals
#1..
- 621 -
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, 2022
(with comparative totals as of June 30, 2021)
2022 2021
ASSETS
Current Assets:

Cash and investments $ - $ 8,265,827
Accounts receivable - 304,695
Interest receivable - 19,897
Prepaid expenses - 5,582
Due from other governments - 9,540,773
Total Current Assets - 18,136,774
Noncurrent Assets:

Capital assets:

Land and construction in progress - 6,852,312
Other capital assets, net - 33,787,902
Total Noncurrent Assets - 40,640,214
Total Assets - 58,776,988

DEFERRED OUTFLOWS OF RESOURCES
Deferred OPEB - 108,362
Deferred pensions - 475,530
Total Deferred Outflows of Resources - 583,892

LIABILITIES
Current Liabilities:

Accounts payable - 3,400,202
Accrued salaries and benefits - 88,159
Advances from other funds - 471,416
Unearned revenue other - 45,361
Unearned revenue CALEMA - 117,245
Unearned revenue capital transit - 6,486,649
Unearned revenue LTF/LCTOP - 5,621,643
Total Current Liabilities - 16,230,675
Noncurrent Liabilities:

Net pension liability - 3,861,752
Net OPEB liability - 466,582
Total Noncurrent Liabilities - 4,328,334
Total Liabilities - 20,559,009

DEFERRED INFLOWS OF RESOURCES
Deferred OPEB - 24,443
Deferred pensions - 13,869
Total Deferred Inflows of Resources - 38,312

NET POSITION
Net investment in capital assets - 40,640,214
Unrestricted - (1,876,655)
Total Net Position $ - $ 38,763,559
#1..
- 622 -
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, 2022
(with comparative totals for the year ended June 30, 2021) 2022 2021

OPERATING REVENUES
Charges for services $ - $ 1,118,636
Miscellaneous - 505,531
Total Operating Revenues - 1,624,167

OPERATING EXPENSES
Contractual services - 17,392,463
Depreciation - 3,479,732
Maintenance and supplies - 3,389,110
Salaries and wages - 1,665,914
Administrative services - 1,850,804
Employee benefits - 787,615
Allocated indirect administrative costs - 375,632
Utilities - 197,821
Insurance - 43,573
Other - 137,652
Total Operating Expenses - 29,320,316
Operating Loss - (27,696,149)

NONOPERATING REVENUES (EXPENSES)
Intergovernmental:

Local transportation funds - 9,152,886
Federal transit administration - 15,974,448
Proposition 1B - 251,011
CMAQ grants - 49,768
Low carbon transit operations program - 323,940
Other - 112,283
Gain (loss) on disposition of capital assets - (258,570) Interest income (loss) - (2,421)
Rental income - 135,914
Change in fair value of investments - (103,414)
Total Nonoperating Revenues (Expenses) - 25,635,845
Income (Loss) Before Capital Contributions, transfers & special items - (2,060,304)
Capital contributions and transfers:

Local transportation funds - 2,462,281
Federal transit administration - 2,979,321
Low carbon transit operations program - (62,756)
Transfers in from other funds of the City - 29,516
Transfers out to other funds of the City (19,328,677) (2,107,313) Total capital contributions and transfers (19,328,677) 3,301,049 SPECIAL ITEM:

Loss on transfer of operations (19,461,712) -
Change in net position (38,790,389) 1,240,745
Prior Period Adjustment 26,830 -
Net Position, Beginning of Year 38,763,559 37,522,814
Net Position, End of Year $ 38,763,559 - $
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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, 2022
(with comparative totals for the year ended June 30, 2021) 2022 2021

CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from customers and users $ 304,695 $ 1,426,891 Payments to suppliers (3,394,620) (22,936,570)
Payments to employees (88,159) (1,183,952)
Net Cash Used in Operating Activities (3,178,084) (22,693,631)

CASH FLOWS FROM NONCAPITAL

FINANCING ACTIVITIES
Cash receipts/(payments) from grants:

Local transportation funds (4,569,276) 12,911,800
State transit assistance - -
Federal transit administration 49,127 12,586,432
CMAQ grant for rideshare program - 49,768
Low carbon transit operations program - 323,940
Other (89,998) (6,750,955)
Transfers in from other funds of the City - 29,516
Transfers out to other funds of the City (26,077) (2,107,313) Advances from other funds of the City (471,416) 471,416 Net Cash Provided (used) by Noncapital Financing Activities (5,107,640) 17,514,604

CASH FLOWS FROM CAPITAL AND RELATED

FINANCING ACTIVITIES
Acquisition and construction of capital assets - (5,488,844) Capital contributions:

Local transportation funds - 2,462,281
Federal transit administration - 2,979,321
Low carbon transit operations program - (62,756)
Net Cash Used in Capital and Related
Financing Activities - (109,998)

CASH FLOWS FROM INVESTING ACTIVITIES
Investment earnings (loss) 19,897 (86,526)
Rental income received - 135,914
Net Cash Provided by Investing Activities 19,897 49,388 Change in cash and investments (8,265,827) (5,239,637)
Cash and Investments, Beginning of Year 8,265,827 13,505,464 Cash and Investments, End of Year $ - $ 8,265,827
Non-cash investing, capital, and
financing activities:

Transfer of fixed assets upon transfer of operations $ 38,737,483 $ - Relief of payroll related debt and associated
deferred outflows/inflows upon transfer of operations $ 3,782,754 $ - #1..
- 624 -
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, 2022
(with comparative totals for the year ended June 30, 2021) 2022 2021

RECONCILIATION OF OPERATING LOSS TO NET
CASH USED IN OPERATING ACTIVITIES:

Operating loss $ - $ (27,696,149)
Adjustments to reconcile operating loss to net cash
used in operating activities:

Depreciation - 3,479,732
Changes in assets and liabilities:

Accounts receivable 304,695 (197,276)
Prepaid expenses 5,582 98,910
Accounts payable (3,400,202) 1,139,190
Accrued salaries and benefits (88,159) 35,851
Net OPEB liability and related deferred
outflows/inflows of resources - (62,816)
Net pension liability and related
deferred outflows/inflows of resources - 508,927
Net Cash Used in Operating Activities $ (3,178,084) $ (22,693,631) #1..
- 625 -

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, 2021, 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.

Governmental Accounting Standards Update: During the year ending June 30, 2022, the City implemented the following standards:

GASB Statement No. 98 – The Annual Comprehensive Financial Report. The requirements of this statement are effective for reporting periods beginning after December 15, 2021.

Released GASB Statements to be implemented in future financial statements are as follows:

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 (continued): 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. 96 – Subscription-Based Information Technology Arrangements. The requirements of this statement are effective for reporting periods beginning after June 15, 2022.

GASB Statement No. 99 – Omnibus 2022. The requirements of this statement are effective for reporting periods beginning after June 15, 2022.

GASB Statement No. 100 – Accounting Changes and Error Corrections. The requirements of this statement are effective for reporting periods beginning after June 15, 2023.

GASB Statement No. 101 – Compensated Absences. The requirements of this statement are effective for reporting periods beginning after December 15, 2023.

Management has determined no events require disclosure in accordance with accounting standards. These subsequent events have been evaluated through November 8, 2022, which is the date the financial statements were available to be issued.
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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, 2022.

Cash and investments as of June 30, 2022 are classified in the accompanying financial statements as follows:

Balance Sheet- Local Transportation
Special Revenue Funds:

Cash and investments $ 1,734,841
Statement of Net Position- Bus Enterprise Fund:

Cash and investments -
Total cash and investments $ 1,734,841
Summary of Deposits: Cash and investments as of June 30, 2022 consist of the following:

Deposits with City of Modesto
Cash and Investment Pool: $ 1,734,841
Total cash and investments $ 1,734,841
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, 2022, the fair value of the TDA Fund’s position in the pool is the same as the value of its pool shares. #1..
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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, 2022, 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 2,791,858 - (2,791,858) -
Total Capital Assets,
Not Being Depreciated 6,852,312 - (6,852,312) -
Capital Assets, Being Depreciated:

Buildings 23,803,489 - (23,803,489) -
Improvements 4,653,536 - (4,653,536) -
Furnishings and equipment 2,792,829 - (2,792,829) -
Vehicles 184,771 - (184,771) -
Buses and fareboxes 36,638,467 - (36,638,467) -
Total Capital Assets,
Being Depreciated 68,073,092 - (68,073,092) -
Less Accumulated Depreciation for:

Buildings (10,125,083) - 10,125,083 -
Improvements (2,481,179) - 2,481,179 -
Furnishings and equipment (1,621,653) - 1,621,653 -
Vehicles (163,458) - 163,458 -
Buses and fareboxes (19,893,817) - 19,893,817 -
Total Accumulated
Depreciation (34,285,190) - 34,285,190 -
Total Capital Assets, Being
Depreciated, Net 33,787,902 - (33,787,902) -
Total Capital Assets, Net $ 40,640,214 $ - $ (40,640,214) $ - Depreciation expense for the year ended June 30, 2022 was $0. #1..
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CITY OF MODESTO

TRANSPORTATION DEVELOPMENT ACT FUNDS
NOTES TO THE FINANCIAL STATEMENTS (continued)
16 NOTE 4 – CALIFORNIA OFFICE OF EMERGENCY SERVICES GRANT (CALEMA) Unearned revenue for the CALEMA Funds for the year ended June 30, 2022, was as follows:

Project Name
Beginning
Unearned
Revenue Interest
New
Receipts
Expended/
Transferred
Ending
Unearned
Revenue
Transit Center Video
Surveillance System $ 117,245 $ - $ - $(117,245) $ -
Total $ 117,245 $ - $ - $(117,245) $ -
NOTE 5 – LOCAL TRANSPORTATION FUNDS UNEARNED REVENUE
Unearned revenue for the TDA Funds for the year ended June 30, 2022, was as follows:

Non-Motorized Streets and Roads Total
Unearned revenue, beginning of year $ 1,230,461 $ 427,374 $ 1,657,835 TDA funds allocated 266,096 238,274 504,370
TDA funds earned (1,766) (427,374) (429,140)
Unearned revenue, end of year $ 1,494,791 $ 238,274 $ 1,733,065 Local Transportation Special Revenue Funds
LTF/LCTOP Capital Transit Total
Unearned revenue, beginning of year $ 5,621,643 $ 6,486,649 $ 12,108,292 TDA funds allocated - - -
TDA funds earned (5,621,643) (6,486,649) (12,108,292)
Unearned revenue, end of year $ - $ - $ -
Bus Enterprise Fund
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CITY OF MODESTO

TRANSPORTATION DEVELOPMENT ACT FUNDS
NOTES TO THE FINANCIAL STATEMENTS (continued)
17 NOTE 6 – 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. A vaccination has been created and is being administered throughout the State, including the City’s service area. The ultimate impact of COVID-19 on the operations and finances of the City remains unknown.

NOTE 7 – DISPOSAL OF TRANSIT OPERATIONS
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 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. Effective July 1, 2021, the City transferred all of its transit operations to StanRTA. This led to the closing of the Bus Enterprise Fund, transit assets and liabilities were transferred to StanRTA to support the new transit operator for the County. All remaining transit assets held by the City after the dissolution of the Bus Fund were transferred to other City funds. This disposal of transit operations led to a loss on transfer of operations of $19,461,712 for year ended June 30, 2022.

NOTE 8 – PRIOR PERIOD ADJUSTMENT
A prior period adjustment of $26,830 was posted to the bus enterprise fund beginning net position for the year ended June 30, 2022. The adjustment was to correct a previous error in recording transfers out as improperly recorded in the prior year.
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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, 2022, and the related notes to the financial statements, and have issued our report thereon dated November 8, 2022.

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.

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. 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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19 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 8, 2022
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CITY OF MODESTO

SINGLE AUDIT REPORT

FOR THE YEAR ENDED
JUNE 30, 2022
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TABLE OF CONTENTS
Page
Reports:

Schedule of Expenditures of Federal Awards.................................................................................................... 6 Notes to Schedule of Expenditures of Federal Awards ..................................................................................... 10 Findings and Questioned Costs:

Schedule of Findings and Questioned Costs...................................................................................................... 11 Status of Prior Year Findings and Questioned Costs.......................................................................................... 13 #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 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
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 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, 2022, 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 9, 2022.

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.

Report on Compliance and Other Matters
As part of obtaining reasonable assurance about whether the City’s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and 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. #1..
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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 9, 2022
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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
City of Modesto, California
Report on Compliance for Each Major Federal Program
Opinion on Each Major 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, 2022. The City’s major federal programs are identified in the summary of auditors’ results section of the accompanying schedule of findings and questioned costs.

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, 2022.

Basis for Opinion on Each Major Federal Program
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). Our responsibilities under those standards and the Uniform Guidance are further described in the Auditors’ Responsibilities for the Audit of Compliance section of our report.

We are required to be independent of the City and to meet our other ethical responsibilities, in accordance with relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion on compliance for each major federal program. Our audit does not provide a legal determination of the City’s compliance with the compliance requirements referred to above.

Responsibilities of Management for Compliance
Management is responsible for compliance with the requirements referred to above and for the design, implementation, and maintenance of effective internal control over compliance with the requirements of laws, statutes, regulations, rules, and provisions of contracts or grant agreements applicable to the City’s federal programs.

Auditors’ Responsibilities for the Audit of Compliance
Our objectives are to obtain reasonable assurance about whether material noncompliance with the compliance requirements referred to above occurred, whether due to fraud or error, and express an opinion on the City’s compliance based on our audit. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with generally accepted auditing standards, Government Auditing Standards, and the Uniform Guidance will always detect material noncompliance when it exists. The risk of not detecting material noncompliance resulting from fraud is higher than for that resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Noncompliance with the compliance requirements referred to above is considered material if there is a substantial likelihood that, individually or in the aggregate, it would influence the judgment made by a reasonable user of the report on compliance about the City’s compliance with the requirements of each major federal program as a whole.
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4 In performing an audit in accordance with generally accepted auditing standards, Government Auditing Standards, and the Uniform Guidance, we:
• Exercise professional judgment and maintain professional skepticism throughout the audit. • Identify and assess the risks of material noncompliance, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the City’s compliance with the compliance requirements referred to above and performing such other procedures as we considered necessary in the circumstances. • Obtain an understanding of the City’s internal control over compliance relevant to the audit in order to design audit procedures that are appropriate in the circumstances 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 the City’s internal control over compliance. Accordingly, no such opinion is expressed.

We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and any significant deficiencies and material weaknesses in internal control over compliance that we identified during the audit.

Report on Internal Control over Compliance
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 a 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 Auditors’ Responsibilities for the Audit of Compliance section above and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies in internal control over compliance. Given these limitations, during our audit we did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses, as defined above. However, material weaknesses or significant deficiencies in internal control over compliance may exist that were not identified.

Our audit was not designed for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, no such opinion is expressed.

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, 2022, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements. We issued our report thereon dated December 9, 2022, which contained unmodified opinions on those financial statements.

Our audit was performed 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.
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5 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
December 9, 2022
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CITY OF MODESTO

SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
FOR THE YEAR ENDED JUNE 30, 2022
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
U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
Direct Programs
CDBG - Entitlement Grants Cluster
Community Development Block Grants (CDBG)/Entitlement Program 14.218 B-17-MC-060002 $ - $ 4,897 Community Development Block Grants (CDBG)/Entitlement Program 14.218 B-18-MC-060002 - 40,455 Community Development Block Grants (CDBG)/Entitlement Program 14.218 B-19-MC-060002 - 378,871 Community Development Block Grants (CDBG)/Entitlement Program 14.218 B-20-MC-060002 16,618 640,854 Community Development Block Grants (CDBG)/Entitlement Program 14.218 B-21-MC-060002 169,959 896,177

14.218 B-20-MW-060002 251,481 316,147
Total CDBG - Entitlement Grants Cluster 438,058 2,277,401 Emergency Solutions Grant Program 14.231 E-20-MC-060002 49,649 60,131 Emergency Solutions Grant Program 14.231 E-20-MW-060002 1,098,492 1,617,284 Emergency Solutions Grant Program - CARES Act 14.231 E-21-MC-060002 11,164 47,318 Total Emergency Solutions Grant Program 1,159,305 1,724,733 Home Investment Partnerships Program 14.239 M-15-MC-060207 - 21,746 Home Investment Partnerships Program 14.239 M-16-MC-060207 - 38,344 Home Investment Partnerships Program 14.239 M-17-MC-060207 - 1 Home Investment Partnerships Program 14.239 M-18-MC-060207 - 9,429 Home Investment Partnerships Program 14.239 M-19-MC-060207 - 72,466 Home Investment Partnerships Program 14.239 M-21-MC-060207 - 40,294 Total Home Investment Partnerships Program - 182,280
TOTAL U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT 1,597,363 4,184,414 U.S. DEPARTMENT OF JUSTICE
Direct Programs
Coronavirus Emergency Supplemental Funding 16.034 2020VDBX0954 - 226,782 Public Safety Partnership and Community Policing Grants 16.710 15JCOPS-21-GG-02447-SPPS - 4,513 Community Development Block Grants (CDBG)/Entitlement
Program - CARES Act
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CITY OF MODESTO
SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS (continued)
FOR THE YEAR ENDED JUNE 30, 2022
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
Passed through the County of Stanislaus
Edward Byrne Memorial Justice Assistance Grant 16.738 2017-DJ-BX-0939 $ - $ 2,484 Edward Byrne Memorial Justice Assistance Grant 16.738 2018-DJ-BX-0826 - 40,079 Edward Byrne Memorial Justice Assistance Grant 16.738 2019-DJ-BX-0693 - 129,909 Edward Byrne Memorial Justice Assistance Grant 16.738 2020-DJ-BX-0226 - 88,815 Edward Byrne Memorial Justice Assistance Grant 16.738 115PBJA-21-GG-01178-JAGX - 65,547 Total Edward Byrne Memorial Justice Assistance Grant - 326,834 TOTAL U.S. DEPARTMENT OF JUSTICE - 558,129
U.S. DEPARTMENT OF TRANSPORTATION
Direct Programs
Airport Improvement Program 20.106 AIP-041 - 5,348
Airport Improvement Program 20.106 AIP-044 - 23,000
Airport Improvement Program - CARES Act 20.106 AIP-043 - 339,000 Total Airport Improvement Program - 367,348
Federal Transit Cluster
Federal Transit - Capital Investment Grants 20.500 CA-04-0198 - 398,169 Bus and Bus Facilities Formula & Discretionary Program 20.526 CA-2019-002-00 - 286,260 Total Federal Transit Cluster - 684,429
Passed through the California Department of Transportation Highway Planning and Construction Cluster
Highway Planning and Construction 20.205 BRLS-5938(167) - 36,541 Highway Planning and Construction 20.205 TGHPLUL-5059(230) - 3,867,276 Highway Planning and Construction 20.205 CML-5059(186) - 925,314 Highway Planning and Construction 20.205 CML-5059(185) - 292 Highway Planning and Construction 20.205 STPL-5059(205) - 145,172 Highway Planning and Construction 20.205 CML-5059(217) - 26,975 Highway Planning and Construction 20.205 CML-5059(219) - 1,877,276 Highway Planning and Construction 20.205 CML-5059(222) - 16,687 Highway Planning and Construction 20.205 CML-5059(223) - 644,496 Highway Planning and Construction 20.205 ATPL-5059(233) - 250,967 #1..
- 644 -

CITY OF MODESTO
SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS (continued)
FOR THE YEAR ENDED JUNE 30, 2022
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
Passed through the California Department of Transportation (continued) Highway Planning and Construction Cluster (continued)
Highway Planning and Construction 20.205 STPL- 5059 (208) $ - $ 2,413,539 Highway Planning and Construction 20.205 NH-P099(647) - 441,477 Highway Planning and Construction 20.205 HSIPL-5059(227) - 7,075 Highway Planning and Construction 20.205 CML-5059(229) - 146,389 Highway Planning and Construction 20.205 STPL-5059(234) - 94,788 Highway Planning and Construction 20.205 CML-5059(236) - 12,332 Highway Planning and Construction 20.205 HSIPL-5059(237) - 5,083 Highway Planning and Construction 20.205 HSIPL-5059(238) - 114,482 Highway Planning and Construction 20.205 STPL-5059(242) - 151,753 Highway Planning and Construction 20.205 STPL-5059(250) - 9,516 Highway Planning and Construction 20.205 CML-5059(244) - 18,519 Highway Planning and Construction 20.205 CML-5059(245) - 24,164 Highway Planning and Construction 20.205 CML-5059(246) - 25,157 Highway Planning and Construction 20.205 CMLNI-5059-(247) - 1,468 Highway Planning and Construction 20.205 CMLNI-5059-(248) - 486,505 Highway Planning and Construction 20.205 CMLNI-5059-(249) - 1,320 Highway Planning and Construction 20.205 CML-5059-(235) - 26,603 Highway Planning and Construction 20.205 CML-5059-(240) - 19,103 Total Highway Planning and Construction Cluster - 11,790,269 Passed through the California Office of Traffic Safety
Highway Safety Cluster
State and Community Highway Safety 20.600 PS22007 - 14,646 State and Community Highway Safety 20.600 PT22034 - 72,783 State and Community Highway Safety 20.600 PS21034 - 42,487 State and Community Highway Safety 20.600 PT21110 - 18,594 Total State and Community Highway Safety - 148,510
Minimum Penalties for Repeat Offenders for Driving While Intoxicated 20.608 PT22034 - 112,678 Minimum Penalties for Repeat Offenders for Driving While Intoxicated 20.608 PT21110 - 35,072 Total Minimum Penalties for Repeat Offenders for Driving While Intoxicated - 147,750 Total Highway Safety Cluster - 296,260
TOTAL U.S. DEPARTMENT OF TRANSPORTATION - 13,138,306
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CITY OF MODESTO

NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
10 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, 2022. 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 basic 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. #1..
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CITY OF MODESTO

SCHEDULE OF FINDINGS AND QUESTIONED COSTS
FOR THE YEAR ENDED JUNE 30, 2022
11 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
Coronavirus State and Local Fiscal Recovery Funds
Staffing for Adequate Fire and Emergency Response
Dollar threshold used to distinguish
Between Type A and B programs: $856,679
Auditee qualified as a low risk auditee? X Yes No
CFDA Number:

21.023
Any audit findings disclosed that are required to be reported in accordance with 2CRF section 200.516(a).

21.027

97.083
Emergency Rental Assistance Program - American
Rescue Plan Act
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CITY OF MODESTO
SCHEDULE OF FINDINGS AND QUESTIONED COSTS (continued)
FOR THE YEAR ENDED JUNE 30, 2022
12 SECTION II – FINANCIAL STATEMENT FINDINGS
There are no financial statement findings to be reported in accordance with Government Auditing Standards.

SECTION III – FEDERAL AWARD FINDINGS
There are no financial statement findings to be reported in accordance with the Uniform Guidance. #1..
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Finance Department
P.O. Box 642
Modesto, California 95354
209.577.5249
Maria Garnica
[email protected]

PRIOR YEAR FINDINGS AND QUESTIONED COSTS
Reference: 2021-001
Type of Finding: Significant Deficiency
Category of Finding: Allowable Costs/Cost Principles
Criteria:

Per Uniform Guidance Section 200.303, it is the City’s responsibility to establish and maintain effective internal controls over Federal awards that provide reasonable assurance that the City is managing the Federal award in compliance with Federal statutes, regulations, and terms and conditions of the Federal award. The requirement ensures that only allowable costs are charged to federal programs.

Condition:

Per audit procedures performed over expenditures charged to the Emergency Rental Assistance Program (the Program), we noted an invoice that was incorrectly calculated and charged to the program. The service charge was calculated on a combined federal and state program total, which resulted in the City’s Program being overcharged.

The overcharge included costs that should have been allocated to the State funding programs as opposed to the federal program, resulting in questioned costs to the Program.

Cause:

Although the City has sufficient internal control processes over expenditures, including proper review, approval and recording; the overcharge was due to the vendor providing one invoice which combined charges for both federal and state funded programs that was overlooked when the invoice was submitted for payment to the federal program.

Effect:

The City is out-of-compliance with the allowable costs/cost principles requirement of the Program in that the federal program was overcharged for the fiscal year ended June 30, 2021.

Questioned Costs:
$68,738
Recommendations:

We recommend that management require vendors to split charges and/or implement additional reviews when processing payments for invoices with multiple funding sources.

Current Year Status:

Corrected
13 #1..
- 650 -

STANISLAUS COUNCIL OF GOVERNMENTS
MEASURE L – CITY OF MODESTO

ANNUAL FINANCIAL REPORT

FOR THE YEAR ENDED
JUNE 30, 2022
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- 651 -

Government-Wide Financial Statements:

Statement of Net Position................................................................................................................... 4 Statement of Activities........................................................................................................................ 5 Fund Financial Statements:

Balance Sheet- Governmental Fund.................................................................................................... 6 Statement of Revenues, Expenditures and Changes in
Fund Balance- Governmental Fund................................................................................................... 7 Statement of Revenues, Expenditures and Changes in Fund Balance- Budget to Actual (GAAP)- Special Revenue Fund .............................................................................. 8 Notes to Financial Statements........................................................................................................................... 9 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........................................................................ 14 Supplemental Schedule:

Schedule of Expenditures by Project............................................................................................................ 16 #1..
- 652 -
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 Audit of the Financial Statements
Opinion
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, 2022, the budgetary comparison schedule for the special revenue fund and the related notes to the financial statements, which collectively comprise the Measure L Fund’s basic financial statements as listed in the table of contents.

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, 2022, 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.

Basis for Opinion
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. Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the Measure L Fund and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Auditors’ Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. #1..
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2 Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with generally accepted auditing standards and Government Auditing Standards will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.

In performing an audit in accordance with generally accepted auditing standards and Government Auditing Standards, we:
• Exercise professional judgment and maintain professional skepticism throughout the audit. • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. • Obtain an understanding of internal control relevant to the audit 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 Measure L Fund’s internal control. Accordingly, no such opinion is expressed. • Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements. • Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Measure L Fund’s ability to continue as a going concern for a reasonable period of time.

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 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 the missing information.

Supplementary Information
Our audit was conducted for the purpose of forming an opinion the financial statements the collectively comprise the Measure L Funds’ basic financial statements. The schedule of expenditures by project (supplemental schedule) is presented for purposes of additional analysis and is not a required part of the basic financial statements. The 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 basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic 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 basic financial statements as a whole.
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- 654 -
3 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, California 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 October 19, 2022 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 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 Measure L Fund’s 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
October 19, 2022
#1..
- 655 -
The accompanying notes are an integral part of the financial statements. 4 STANISLAUS COUNCIL OF GOVERNMENTS

MEASURE L - CITY OF MODESTO

STATEMENT OF NET POSITION
JUNE 30, 2022
Governmental
Activities
ASSETS
Cash and investments $ 29,066,983
Accounts receivable 3,910,247
Total Assets 32,977,230

LIABILITIES
Accounts payable 205,249
Total Liabilities 205,249

NET POSITION
Restricted 32,771,981
Total Net Position $ 32,771,981
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- 656 -
The accompanying notes are an integral part of the financial statements. 5 STANISLAUS COUNCIL OF GOVERNMENTS

MEASURE L - CITY OF MODESTO

STATEMENT OF ACTIVITIES
FOR THE YEAR ENDED JUNE 30, 2022
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 $ 3,224,904 $ 14,333,438 $ 11,108,534 Totals $ 3,224,904 $ 14,333,438 11,108,534
General Revenues:

Investment earnings (losses) (726,586)
Project refund transfers in 409,129
Total General Revenues (317,457)
10,791,077
Net Position, Beginning of Year 22,452,320
Prior Period Adjustment (471,416)
Net Position, End of Year $ 32,771,981
Revenues
Change in Net Position
#1..
- 657 -
The accompanying notes are an integral part of the financial statements. 6 STANISLAUS COUNCIL OF GOVERNMENTS

MEASURE L - CITY OF MODESTO

BALANCE SHEET

GOVERNMENTAL FUND
JUNE 30, 2022
ASSETS
Cash and investments $ 29,066,983
Accounts receivable 3,910,247
Total Assets $ 32,977,230

LIABILITIES
Accounts payable $ 205,249
Total Liabilities 205,249

DEFERRED INFLOWS OF RESOURCES
Unavailable revenue 4,503
Total Deferred Inflows of Resources 4,503

FUND BALANCE
Restricted 32,767,478
Total Fund Balance 32,767,478
Total Liabilities, Deferred Inflows of Resources, and Fund Balance $ 32,977,230 Reconciliation of the Balance Sheet of the Governmental Fund to the Statement of Net Position:

Total Fund Balance - Governmental Fund $ 32,767,478
Adjustments to the Balance Sheet of the Governmental Fund to reconcile with the Statement of Net Position:

Revenues were considered earned in the Statement of Net Position in the prior period, but are considered deferred in the governmental funds. 4,503
Total Net Position - Governmental Activities $ 32,771,981 #1..
- 658 -
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

GOVERNMENTAL FUND
FOR THE YEAR ENDED JUNE 30, 2022

REVENUES
Measure L funds $ 14,333,438
Investment earnings (losses) (726,586)
Project refund transfers in 409,129
Total Revenues 14,015,981

EXPENDITURES
Public ways and facilities 3,224,904
Total Expenditures 3,224,904
Net Change in Fund Balance 10,791,077
Fund Balance, Beginning of Year 22,447,817
Prior Period Adjustment (471,416)
Fund Balance, End of Year $ 32,767,478
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 $ 10,791,077 Adjustments to the Statement of Revenues, Expenditures and Changes in Fund Balance of the Governmental Fund to reconcile with the Statement of Activities:

None -
Change in Net Position - Governmental Activities $ 10,791,077 #1..
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The accompanying notes are an integral part of the financial statements. 8 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, 2022
Actual Variance with
Original Final (GAAP Basis) Final Budget

RESOURCES (INFLOWS)
Measure L funds $ 9,206,639 $ 14,206,639 $ 14,333,438 $ 126,799 Investment earnings (losses) - - (726,586) (726,586)
Project refund transfers in - - 409,129 409,129
Total Resources (Inflows) 9,206,639 14,206,639 14,015,981 (190,658)

CHARGES TO

APPROPRIATIONS (OUTFLOWS)
Streets and roads 7,093,500 10,838,257 2,179,779 8,658,478 Bike and pedestrian 948,848 1,286,744 67,090 1,219,654
Traffic management 1,214,688 1,077,377 978,035 99,342
Total Charges to
Appropriations (Outflows) 9,257,036 13,202,378 3,224,904 9,977,474 Net Change in Fund Balance $ (50,397) $ 1,004,261 10,791,077 $ 9,786,816 Fund Balance, Beginning of Year 22,447,817
Prior Period Adjustment (471,416)
Fund Balance, End of Year $ 32,767,478
Budgeted Amounts
#1..
- 660 -

STANISLAUS COUNCIL OF GOVERNMENTS

MEASURE L - CITY OF MODESTO

NOTES TO FINANCIAL STATEMENTS
9 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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- 661 -

STANISLAUS COUNCIL OF GOVERNMENTS

MEASURE L - CITY OF MODESTO
NOTES TO FINANCIAL STATEMENTS (continued)
10 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 Measure L Fund 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, 2022, management considered all accounts to be fully collectible and, therefore, no allowance was recorded in the accompanying financial statements.

Accounts Payable: Certain costs are incurred by the Measure L 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 $205,249 as of June 30, 2022.

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)
11 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 Statement 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 Statement 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, 2022. • 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, 2022. • 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, 2022. • Unassigned – Amounts that are available for any purpose. The Measure L Fund did not have any unassigned resources as of June 30, 2022.

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, 2022, the Measure L Fund implemented the following standards with no financial impact:

STANISLAUS COUNCIL OF GOVERNMENTS

MEASURE L - CITY OF MODESTO
NOTES TO FINANCIAL STATEMENTS (continued)
12 NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Governmental Accounting Standards Update (continued): 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.

Released GASB Statements to be implemented in future financial statements are as follows:

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. 98 – The Annual Comprehensive Financial Report. The requirements of this statement are effective for reporting periods beginning after December 15, 2021.

GASB Statement No. 99 – Omnibus 2022. The requirements of this statement are effective for reporting periods beginning after June 15, 2022.

GASB Statement No. 100 – Accounting Changes and Error Corrections. The requirements of this statement are effective for reporting periods beginning after June 15, 2023.

GASB Statement No. 101 – Compensated Absences. The requirements of this statement are effective for reporting periods beginning after December 15, 2023.

Management has determined that no events require disclosure in accordance with accounting standards. These subsequent events have been evaluated through October 19, 2022, which is the date the financial statements were available to be issued.

NOTE 2 – CASH AND INVESTMENTS
Cash and investments as of June 30, 2022 are classified in the accompanying financial statements as follows:

Statement of Net Position:

Cash and investments $ 29,066,983
Total cash and investments $ 29,066,983
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STANISLAUS COUNCIL OF GOVERNMENTS

MEASURE L - CITY OF MODESTO
NOTES TO FINANCIAL STATEMENTS (continued)
13 NOTE 2 – CASH AND INVESTMENTS (continued)
Summary of Deposits:

Cash and investments as of June 30, 2022 consist of the following:

Deposits with City of Modesto $ 29,066,983
Total cash and investments $ 29,066,983
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 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 Measure L Fund’s service area. The ultimate impact of COVID-19 on the Measure L Fund is unknown.

NOTE 6 – PRIOR PERIOD ADJUSTMENT
A prior period adjustment of ($471,416) was recorded to the special revenue fund and governmental activities beginning fund balance and net position, to account for revenues recorded as earned in the prior period that were disbursed to the Stanislaus Regional Transit Authority for transit operations, and were incorrectly recorded by the Measure L Fund.
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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 financial statements of the governmental activities and major fund of the Measure L Fund of the City of Modesto (the Measure L Fund), as of and for the year ended June 30, 2022, the budgetary comparison schedule for the special revenue fund and the related notes to the financial statements, which collectively comprise the Measure L Fund’s basic financial statements, and have issued our report thereon dated October 19, 2022.

Report on 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) as a basis for designing 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.

Report on 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, and grant agreements, noncompliance with which could have a direct and material effect on the financial statements.
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15 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.

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 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 19, 2022
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STANISLAUS COUNCIL OF GOVERNMENTS
MEASURE L – CITY OF MODESTO

SUPPLEMENTAL SCHEDULE
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16 STANISLAUS COUNCIL OF GOVERNMENTS

MEASURE L - CITY OF MODESTO

SCHEDULE OF EXPENDITURES BY PROJECT
FOR THE YEAR ENDED JUNE 30, 2022
Category
Project
Number Project Name
Expense Budget
-Local Control
Measure L
FY 21-22
Expenses
Project to Date
Expenses
through
6/30/2022
Budget
Remaining for
Future Fiscal
Years
Local Streets & Roads 100806 2016 Pavement Rehab Project $ 338,537 $ 63,572 $ 63,572 $ 274,965 Local Streets & Roads 100942 Paradise Road Improvements 415,000 - - 415,000 Local Streets & Roads 100966 Pelandale from Sisk to Dale 700,000 187,385 487,249 212,751 Local Streets & Roads 101036 Carpenter Street Improvements 2,628,392 - 2,628,392 - Local Streets & Roads 101037 Lakewood Street Improvements 2,365,558 - 2,365,558 - Local Streets & Roads 101038 Wylie,Floyd,Carver Improvements 2,250,469 - 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 - 2,788,144 - Local Streets & Roads 101118 Claus Road Pavement Rehab 1,183,203 - 1,183,203 - Local Streets & Roads 101120 Village One Slurry Seal 2,554,544 - 2,554,544 - Local Streets & Roads 101141 Downtown Master Plan 108,450 - 108,450 - Local Streets & Roads 101168 Scenic Dr Pavement Rehab Phase 1 (Lakewood to Claus) 1,345,720 1,025,638 1,241,781 103,939 Local Streets & Roads 101169 Scenic Dr Pavement Rehab Phase 2 (Downey to 3,100,000 161,945 198,571 2,901,429 Local Streets & Roads 101170 Tully Road Pavement Rehab 2,011,496 433 2,011,496 - Local Streets & Roads 101171 Coffee Road Pavement Rehab Phase 1 3,186,604 361 3,186,604 - Local Streets & Roads 101214 Granger Neighborhood Pavement Rehabilitation 2,830,000 76,329 269,975 2,560,025 Local Streets & Roads 101245 2020 Pvmnt Condition Survey 300,000 182,932 182,932 117,068 Local Streets & Roads 101246 Briggsmore-McHenry to Oakdale 5,267,500 166,827 368,465 4,899,035 Local Streets & Roads 101248 Orangeburg Ave. Pvmt Rehab Ph1 1,851,500 143,696 226,159 1,625,341 Local Streets & Roads 101249 Pelandale Nghbrhd Pvmt Maintenance 1,871,250 130,183 273,238 1,598,012 Local Streets & Roads 101314 Coffee Road Pavement Rehab Phase 2 2,748,500 13,660 13,660 2,734,840 Local Streets & Roads 101315 Dale Road Pavement Rehabilitation 285,000 26,816 26,816 258,184 Total Local Streets and Roads $ 40,889,867 $ 2,179,778 $ 22,429,278 $ 18,460,589 Traffic Management 100634 Upgrade Traffic Signals - 2013 $ 175,000 $ 29,581 $ 169,432 $ 5,568 Traffic Management 100719 Traffic Signals 2013 (Ros/Bel) - - - - Traffic Management 100720 Traffic Signals 2013 (Pres/Mt. Vrn) 122,080 - 122,080 - Traffic Management 100884 Emergency Vehicle Pre-Emption 61,500 - 61,500 - Traffic Management 100990 System Safety Analysis Program 32,500 526 30,018 2,482 Traffic Management 101039 Task Force for School Safety 45,000 11,212 34,353 10,647 #1..
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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, 2022
Category
Project
Number Project Name
Expense Budget
-Local Control
Measure L
FY 21-22
Expenses
Project to Date
Expenses
through
6/30/2022
Budget
Remaining for
Future Fiscal
Years
Traffic Management 101040 Orville Wright Elementary Improve. $ 586,702 $ 2,500 $ 534,084 $ 52,618 Traffic Management 101043 Replace Traffic Controllers 584,437 - 584,437 - Traffic Management 101089 Tully Road Safety Improvement 511,183 3,962 34,794 476,389 Traffic Management 101122 Install 2 Flashing Beacons 9,970 - 9,970 - Traffic Management 101123 Fiber Drop Traffic Signal Cabinet 420,372 225,633 225,789 194,583 Traffic Management 101124 Replace 35 Traffic Controllers 178,250 - 150,149 28,101 Traffic Management 101125 Traffic Signal Analysis Study 250,000 - 243,270 6,730 Traffic Management 101172 School Safety Program Study 250,000 72,388 131,613 118,387 Traffic Management 101173 School Area All Stop Beacon 48,000 - 48,000 - Traffic Management 101174 Advance School Zone Beacons at 13 Schools 130,000 125,011 125,011 4,989 Traffic Management 101175 School Crosswalk Beacon 986,861 29,794 55,180 931,681 Traffic Management 101176 Upgrade Crosswalk to RRFB 37,457 103 37,456 1 Traffic Management 101177 Upgrade RRFB - Elliot School 20,000 - 19,670 330 Traffic Management 101178 Neighborhood Traffic Calming 650,000 39,285 59,666 590,334 Traffic Management 101179 HAWK System at Hetch-Hetchy on Tully and Prescott 470,711 - 25,846 444,865 Traffic Management 101192 Upgrade ATMS - 2019 439,628 - - 439,628 Traffic Management 101221 School Safety Program Study - Projects 575,000 - - 575,000 Traffic Management 101242 Install Video Detection 410,000 399,971 399,971 10,029 Traffic Management 101247 Virginia Corridor Trail Maintenance 58,900 - - 58,900 Traffic Management 101316 Adaptive Traffic Control Software 700,000 - - 700,000 Traffic Management 101317 Fiber Drop Carpenter/Prescott/Maze 40,000 4,669 4,670 35,330 Traffic Management 101318 Fiber Drop Downtown Corridors - G St. and H St. 30,000 4,448 4,449 25,551 Traffic Management 101322 Claus Road Signal Coordination 138,750 14,183 14,452 124,298 Traffic Management 101323 Scenic Drive Signal Coordination 185,000 14,766 14,983 170,017 Traffic Management 101383 Oakdale Road Improvement 16,390 109 109 16,281 Traffic Management 101384 Sylvan/Standiford PHB's 11,150 93 93 11,057 Total Traffic Management $ 8,174,841 $ 978,236 $ 3,141,045 $ 5,033,796 Bike and Pedestrian 100882 MJC Bike Path Phase 2 $ 202,047 $ - $ 202,047 $ - Bike and Pedestrian 101041 Active Transportation Plan 300,000 24,440 242,334 57,666 Bike and Pedestrian 101042 Paradise Road ATP 60,000 - 25,000 35,000 #1..
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18 STANISLAUS COUNCIL OF GOVERNMENTS

We have audited the 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 for the year ended June 30, 2022, the budgetary comparison schedule for the special revenue fund and the related notes to the financial statement, which collectively comprise the basic financial statements. Professional standards require that we provide you with information about our responsibilities under generally accepted auditing standards and Government Auditing, 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 31, 2022. Professional standards also require that we communicate to you the following information related to our audit.

Significant Audit Matters
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 2022. 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 were no 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. #1..
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Stanislaus Council of Governments
Measure L – City of Modesto
October 20, 2022

Page 2 of 2 ends

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.

Management Representations
We have requested certain representations from management that are included in the management representation letter dated October 19, 2022.

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 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

COMMITTEE AGENDA REPORT
DATE OF MEETING:

January 23, 2023
Date: January 3, 2023
TO: Audit Committee
Sue Zwahlen, Chair
David Wright, Vice-Chair
Nick Bavaro, Member
THROUGH: Joseph P. Lopez, City Manager
FROM: DeAnna Christensen, Director of Finance
SUBJECT: Transient Occupancy Tax Audit
CONTACT: Gina Brown, Revenue Collection and Compliance Manager, [email protected], 209-577-5381
DESCRIPTION:

Consider accepting an informational update for the Transient Occupancy Tax Audit and forwarding to Council for approval. (Funding Source: General Fund) 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 Finance Department oversees the collection of Transient Occupancy Tax (TOT) from the City’s local lodging providers. On October 12, 2004, under Resolution 2004-529, City Council approved the City Finance Department enter into an agreement with Municipal Resources Consultants (now MuniServices, LLC) for various tax consultant services which included tax audits, analysis, and reporting services. In 2017, the Finance Department contracted MuniServices to analyze the records of twenty-five (25) lodging providers and they selected eight (8) lodging businesses to be audited. MuniServices identified a total of $124,200 in tax deficiencies; in accordance with Municipal Code 8-2.610 several hotels requested a hearing. As a result of the hearings held, the hearing officer determined that the lodging providers were required to pay a total of $106,884 in under reported taxes. The taxes were collected in full and MuniServices was paid twenty-five (25) percent of the revenue collected, totaling $26,721, for their services.

On January 14, 2020, under Resolution 2020-008, the City Council approved the Finance Department enter into a new two-year agreement with three one-year extension with MuniServices LLC. On August 21, 2021, the City Finance Department contacted MuniServices #2..
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Audit Committee, January 23, 2023
Transient Occupancy Tax Audit

Page 2 of 3 ends

to conduct Transient Occupancy Tax Audits and conduct a comprehensive review of all local lodging providers to ensure compliance with the City’s Transient Occupancy Tax Ordinance and State Law. Phase I consisted of MuniServices analyzing the reported revenue and tax of the nineteen (19) operational hotels and they select seven (7) lodging businesses to be audited. In October 2021, Phase II was initiated to validate the tax reported for the period January 1, 2018, through December 31, 2020.

DISCUSSION:

As part of Phase I, the Finance Department’s staff provided MuniServices a listing of the nineteen (19) local lodging providers and their business license tax filing records from the January 1, 2018, through December 31, 2020 period. MuniServices analyzed the nineteen (19) lodging providers. In October 21 2021, as part of Phase II, MuniServices selected seven (7) hotels at six (6) locations to be audited to ensure compliance with the requirements of the collection of the TOT. The City sent out compliance review letters introducing MuniServices as the contracted auditors to each of the hotels. The letters asked the businesses for their cooperation with the tax consultants to ensure a complete and accurate audit.

MuniServices worked directly with each selected hotel to examine relevant records and complete their audit review. Once the assessment was complete, MuniServices provided the City with a finalized accounting of deficiency. The Municipal Code requires TOT to be collected on any fees charged for the privilege of occupying a hotel room. However, the audit determined that some hotels were not collecting TOT on certain required fees, causing a deficiency in taxable rents:

Below is a breakdown of the under reported Transient Occupancy Tax by finding type.

Findings # of Hotels Tax Under
Reported
Roll-away Bed Fees 3 $34
Pet Fees 4 $7,163
Early Check-ins 1 $1,593
Late Check-out/Cancellation Fees 4 $6,023
No Show Fees 2 $4,329
Room Upgrade Fees 1 $2
Under Reported Gross Receipts 3 $8,158
Disallowed Deductions 3 $2,156
Total $29,458
These audit findings were reviewed by the Revenue Collection and Compliance Manager and City staff. The Finance Department sent a letter of good standing to one (1) hotel that did not have any findings. The Finance Department also sent deficiency determination notifications to six (6) hotel locations, identifying each deficiency and the tax due. The deficiency determination letters sent to the local lodging provider informed the businesses of their opportunity to dispute the findings and as part of the City’s dispute process, and the need for the business to submit supporting documentation to the City if the auditor’s findings were disputed. Modesto Municipal Code section 8-2.610 provides the local lodging providers with a right to appeal the determination by hearing with the City’s Tax Administrator. None of the six (6) hotel locations exercised their right to an appeal. All TOT taxes related to the deficiency determination have been paid by the hotels.
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Audit Committee, January 23, 2023
Transient Occupancy Tax Audit

Page 3 of 3 ends

As part of this audit, the City of Modesto’s Finance Department partnered with the Convention Visitors Bureau to compare the taxability of hotel fees to other jurisdictions and worked with the City Attorney’s Office to identify which fees are taxable in accordance with the City’s Municipal Code. The Finance Department prepared a list of hotel fees subject to the TOT. This list of fees subject to TOT in Modesto is similar to the fees subject to TOT in other jurisdictions with similar ordinances. The current hotel fees subject to TOT are posted online and a link was sent to all hotels via email and mail communication to avoid or reduce audit findings in the future. In addition, the monthly TOT form provides a link to direct them to this website as a reminder.

Starting January 1, 2023, Cancellation Fees, No-Show Fees, Attrition Fees, and Forfeited Deposits will no longer be taxable based on the results of this review.

FISCAL IMPACT:

Based on MuniServices final audit report and findings, the amount of under reported taxes determined due to the City was $29,458. The contracted payment for services rendered to MuniServices was $700 per hotel for Phase I (for a total of $13,300) and $1,000 per hotel for Phase II (for a total of $7,000), for a grand total of $20,300.

RECOMMENDED COMMITTEE ACTION:

Staff Recommendations:

Motion approving the informational update for the Transient Occupancy Tax Audit and forwarding to Council for approval.

Approved by:
____
DeAnna Christensen, Director of Finance
____
Joseph P. Lopez, City Manager
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CITY OF MODESTO

COMMITTEE AGENDA REPORT
DATE OF MEETING:

January 23, 2022
Date: January 16, 2022
TO: Audit Committee
Sue Zwahlen, Chair
David, Wright, Vice-Chair
Nick Bavaro, Member
THROUGH: Joseph P. Lopez, City Manager
FROM: DeAnna Christensen, Director of Finance
SUBJECT: Citywide Risk Assessment
CONTACT: DeAnna Christensen, Director of Finance, [email protected] 209-577-5387
DESCRIPTION:

Consider approving the Citywide Risk Assessment prepared by Sjoberg Evashenk Consulting, Inc. and forwarding to Council. (Funding Source: General Fund) 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 February 2008, Modesto voters approved Measure M, otherwise titled “The Accountability in City Hall Measure of 2008”, which focused on amending Modesto’s Charter in ways that served to create a more open process in Modesto City governance. It particularly served to increase the oversight capacity of the elected Mayor and Councilmembers over certain matters such as budget and City operations. One such way proposed under the measure to provide greater opportunity to review City efficiencies was the creation of a separate Office of the City Auditor, who would serve as an independent Charter Office answering directly to the Council. The Charter amendment1 also specifically delineated the duties of the City Auditor, with particular emphasis on the conduct of City process, or performance audits.

One of the core functions of the City Auditor Office is to perform risk assessments to determine opportunities for greater efficiencies or employ best practices to be fiscally responsible.

Assessments are performed on all departments, reviewing policies, procedures, and practices. 1 Refer to Charter SECTION 902.1
https://library.municode.com/ca/modesto/codes/code_of_ordinances?nodeId=CHTR_ARTIXOFEM_S902.1OFAU #3..
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Audit Committee, January 23, 2023
Citywide Risk Assessment

Page 2 of 3 ends

DISCUSSION:

Since the creation of the City Auditor position, the City has either employed a City Auditor or has contracted with a firm to provide these services between appointments. Further, the City recently reviewed various sections of the City Charter, the Charter Review Committee recommended, and voters subsequently approved, a number of changes to the Office of the City Auditor. Given the timing of these events, staff recommended using the interim period to hire a firm to complete a Risk Assessment and perform other auditing services as identified by staff and/or council.

On October 15, 2021, the Human Resource Department solicited Request for Proposals (RFP) to 12 auditing firms who specialize in internal audit functions. Five companies provided responsive and responsible proposals. An evaluation committee comprised of three Council members chosen by the full Council and one City staff member evaluated and scored the proposals. On April 5, 2021, under Resolution 2022-179, after a competitive bidding process, the City Council approved a contract with Sjoberg Evashenk Consulting to provide as-needed auditing services, including:
 Conducting financial, operational, and performance audits to determine compliance with laws and the appropriate utilization of resources including public funds, personnel, property, equipment, and space to ensure efficiency of operations  Reviewing system of internal controls confirming the adequacy and effectiveness of the controls and that work complies with applicable professional standards.  Identifying causes of inefficiencies or uneconomical practices including inadequacies in management information systems, internal and administrative procedures, organizational structure, use of resources, allocation of personnel, purchasing polices, and equipment.
 Consulting with operating departments to recommend appropriate improvements to procedures, review progress on implementing the recommended improvements, and ensure action is taken.
 Conducting research, analysis, and special studies on complex and sensitive administrative and policy issues; prepare reports with recommendations for appropriate action.
 Providing timely information and report progress and results of audits to City Council.

The first task required under the contract was the completion of a citywide risk assessment.

Audit standards issued by the Institute of Internal Auditors2 require that audit organizations establish a risk-based plan to determine the priorities of the internal audit activity—or City Auditor function—and that the plan be consistent with the organization’s goals and priorities. A risk assessment is a means of identifying, measuring, and prioritizing potential audit areas based on the level of risk these areas pose to an organization. The purpose of a risk assessment is to help inform future audit planning efforts, and to better ensure that limited audit resources are deployed in a manner that adds the greatest value to the City. It does this primarily by facilitating the identification of auditable units within the agency, such as divisions or programs; the assessment of inherent risks to the success of key operations, programs, and services; and the prioritization of potential audit topics. 2 https://www.theiia.org/globalassets/site/standards/mandatory-guidance/ippf/2017/ippf-standards-2017-english.pdf #3..
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Audit Committee, January 23, 2023
Citywide Risk Assessment

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In conducting the present study, Sjoberg Evashenk Consulting assessed and analyzed the results of prior studies and audits, legal and regulatory requirements, program goals and objectives, management concerns, compliance requirements, and internal controls such as performance management. The team conducted research, interviews, and document reviews with all City departments. The resulting report includes summary profiles for each department describing their functions, responsibilities, and a heat map rating the risks for those functions, along with potential audit topics. This report does not provide specific conclusions regarding the City’s operations or programs, nor does it present specific recommendations for improvement.

Rather, it is intended to facilitate a deliberative approach to directing limited audit resources, identifying nearly 50 audit topics, and it recommends consideration of specific audits for inclusion in a five-year audit plan.

This report will be used to initiate the develop of an audit schedule defined under Modesto City Charter, Section 902.1(H) for future submittal by the City Auditor’s Office.

FISCAL IMPACT:

While the information contained in this report discloses areas of risk involving City departments and programs, there is no direct fiscal impact. The cost for Sjoberg Evashenk to complete this plan was $99,973 and was funded by the General Fund from the savings of the vacancy of the City Auditor position.

RECOMMENDED COMMITTEE ACTION:

Staff Recommendations:

Motion accepting the Citywide Risk Assessment Report completed by Sjoberg Evashenk Consulting and forwarding to Council for approval.

Approved by:

DeAnna Christensen, Director of Finance
Joseph P. Lopez, City Manager
Attachments:

1. Citywide Risk Assessment

2. Measure M - “The Accountability in City Hall Measure of 2008” #3..
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455 Capitol Mall • Suite 700 • Sacramento, California • 95814 • Tel 916.443.1300 • www.secteam.com City of Modesto
Internal Audit
Citywide Risk Assessment – 2022
January 2023
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Table of Contents
Introduction....................................................................................................................................................2 Background ...............................................................................................................................................2 Risk Assessment Approach ......................................................................................................................4 Department Risk Profiles ...............................................................................................................................9 City Attorney..............................................................................................................................................9 City Clerk................................................................................................................................................. 12 City Manager’s Office.............................................................................................................................. 15 Community and Economic Development ................................................................................................ 18 Finance ................................................................................................................................................... 23 Fire.......................................................................................................................................................... 27 Human Resources................................................................................................................................... 30 Information Technology........................................................................................................................... 35 Parks, Recreation, and Neighborhoods................................................................................................... 39 Police ...................................................................................................................................................... 43 Public Works ........................................................................................................................................... 47 Utilities..................................................................................................................................................... 52 Risk Assessment Results ............................................................................................................................ 57 #3..
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Introduction
The City of Modesto asked Sjoberg Evashenk Consulting to conduct a citywide risk assessment as part of a long-term internal audit planning process. A fundamental component of a successful internal audit function requires determining which departments, programs, or activities to audit—and allocating scarce audit resources in a way that adds the greatest value to the City. As such, the purpose of this project was to identify key organizational units, programs, and operations of the City and to assess each in terms of the potential risk factors that could impede the effective delivery of services, reduce operational efficiency, or impair transparency and public accountability. As the relative magnitude and prevalence of potential risk factors associated with key programs increase, so too does the potential value a performance audit of the program will be to the City.

Background
The City of Modesto was founded as one of the San Joaquin Valley’s railroad towns in 1870. As of 2022, the City encompasses more than 37.4 square miles and takes pride in serving a population of nearly 217,900 residents, 145,000 households, and a prosperous business community.

Modesto is a Charter City and operates under a Council-Manager form of municipal government. Thus, the City Council stands responsible for establishing policy, passing local ordinances, voting appropriations, and developing an overall vision for the City. The City Council appoints a City Manager to serve as the Chief Administrative Officer for the City. In this role, the City Manager oversees the daily operations of the government, implements the policies established by the governing body, and oversees various departments primarily responsible for delivering services to City residents and administering City government. These departments include City Manager’s Office, Community and Economic Development, Finance, Fire, Human Resources, Information Technology, Parks, Recreation and Neighborhoods, Police, Public Works, and Utilities. In addition, the Office of the City Attorney, City Auditor, and City Clerk falls under the purview of the City Council. The City’s organizational chart is depicted in Exhibit 1 below.

EXHIBIT 1. CITYWIDE ORGANIZATIONAL CHART
Source: Official City Organization Charts
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As illustrated below, the City’s Fiscal Year 2022-23 budgeted operating expenses for all departments totaled approximately $467 million, of which the Utilities Department and Public Safety comprise most City expenditures. This amount does not include budgeted transfers of approximately $47 million.

EXHIBIT 2. ALLOCATED BUDGETED EXPENDITURES BY CITY DEPARTMENT Source: City of Modesto Fiscal Year 2022-23 Budget Book The City uses various funds to pay for Department operating expenses, including the City’s General Fund as well as a variety of special revenue or restricted funds such as Water, Wastewater, Internal Service Funds, Surface Transportation, Solid Waste, and Storm Drain. Other revenue sources include the City’s Golf Fund, Centre Plaza, and Airport fund. Restricted revenues are used to fund narrowly-specified City operations; for example, state and federal grant monies are generally restricted to the purposes/program for which the grant was approved, and use fees are generally required to be used to recover the cost of services rendered. The General Fund, however, is the City’s primary operating fund, with $171.4 million in projected revenues derived primarily from local taxes (e.g., sales, property, utility user, business license, and cannabis taxes), and may be used to fund almost any municipal service. Most General Fund revenues (80 percent) pay for public safety programs, including the Police and Fire departments. Other City services that rely on the General Fund include parks, recreation, planning, economic development, and general government administration.

According to City management, one of its most significant challenges has been a consistently underfunded General Fund needed to support general municipal services. According to the FY 2022-23 budget, the City’s General Fund has been underfunded since the Great Recession, with expenditure growth outpacing the growth of revenues annually. This has led to several rounds of staffing cuts, totaling 27 percent (224 FTEs) of its personnel in General Funds Departments within the last 15 years, and related service #3..
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reductions at a time when demands for such services have only increased. An independent study revealed that these cuts have led to operational inefficiencies and have impeded the City’s ability to fund and support appropriate service levels and maintain valuable public assets. In November 2022, the citizens of Modesto voted on a one-cent sales tax measure that could generate approximately $39 million annually that will help the city maintain and improve current levels of public safety, infrastructure, and parks.

Risk Assessment Approach
The Modesto City Charter requires the City Auditor to annually submit a one- to five-year audit schedule to the Audit Committee and Council for review and comment, and that this plan include the rationale for selecting certain departments and other municipal functions for the audit plan.1 Audit standards issued by the Institute of Internal Auditors require that the chief audit executive establish a risk-based plan to determine the priorities of the management audit activity, and that the plan be consistent with the organization’s goals. The purpose of a risk assessment is to help ensure that limited audit resources are deployed in a manner that fulfills the purpose of the City by identifying inherent risks to the successful execution of municipal operations, programs, and services; and differentiating between all the potential risks and areas of interest and prioritizing them based on the potential value that the audit may provide to the City. This process is intended to facilitate a deliberative approach to directing limited audit resources and to inform management of potential areas of risk for which it may wish to take action; it is not intended to provide specific conclusions regarding an organization’s operations or programs, or to present specific recommendations for improvement.

While potential financial and performance audit topics are wide-ranging, relating to any area within City government, the Modesto City Charter primarily empowers the City Auditor to conduct such audits of all departments, offices, boards, activities, agencies, and programs of the City in order to independently and objectively determine whether:2
• Activities and programs being implemented have been authorized by government Charter or Code, state law or applicable federal law or regulations and are being conducted and funds expended in compliance with applicable laws;
• The department, office, or agency is acquiring, managing, protecting, and using its resources, including public funds, personnel, property, equipment, and space, economically, efficiently, equitably, and effectively and in a manner consistent with the objectives intended by the City Council or enabling legislation;
• The entity, programs, activities, functions, or policies are effective, including the identification of any causes of inefficiencies or uneconomical practices; • The desired result or benefits as intended by the City Council are being achieved; • Financial and other reports are being provided that disclose fairly, accurately, and fully all information required by law, to ascertain the nature and scope of programs and activities, and to 1 Modesto City Charter 902.1(H)
2 Modesto City Charter, Section 902.1(C)
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establish a proper basis for evaluating the programs and activities including the collection of, accounting for, and depositing of, revenues and other resources; • Management has established adequate operating and administrative procedures and practices, systems or accounting internal control systems and internal management controls; and • Indications of fraud, abuse or illegal acts are valid and need further investigation.

To fulfill the strategic purpose of a citywide risk assessment, our team interviewed nearly 40 department heads and division managers to gather information about City operations, programs, and functions; to identify potential and inherent risks to the achievement of the missions, objectives, and goals of each; and to discuss current initiatives and activities of the departments. We also obtained and evaluated current and historical background information for each office, department, and program, including information available through the City’s website, program descriptions, budget documentation, strategic plans and annual reports, policies and procedures, and other relevant documentation, etc. In doing so, we identified the audit universe and auditable units, including City departments and the defined programs, services, and functions carried out by City departments, and identified the sources and types of risks associated with the missions, objectives, and goals of each.

Some information was obtained directly from objective reporting of past and current performance. This includes the relative size of one department’s budget or workforce in relation to other departments, one department’s financial exposure resulting from claims filed as compared to other departments, the number of contracts or capital projects managed by one department as compared to others, as well as key performance indicators and departmental performance reports. Other information was obtained through subjective analyses of current issues and trends affecting each department. This includes understanding and assessing public concern related to certain programs, services, or functions of City government; determining the extent to which certain problems are already known, such as through the press or previously completed audits or studies; or the extent to which previously manual activities have been automated. Both subjective and objective risk categories drive the ultimate calculated risk score for each department and program area, and the relative risk associated with each when compared to other City departments or program areas.

Exhibits 3 and 4 differentiate the nature of the risks auditors often use as criteria to prioritize potential audit topics. Exhibit 3 presents risk factors that are primarily a product of how the City administers a function— e.g., decisions related to resource allocation, strategic and organizational planning, and information technology, among other factors.
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EXHIBIT 3. RISK SOURCES & TYPES RELATED TO THE ADMINISTRATION OF CITY PROGRAMS Exhibit 4 presents risk factors that are inherent to the function, regardless of how the function is administered within the City. For example, public safety departments are inherently more visible to the public, are exposed to increased health and safety risks, and involve greater organizational complexity than smaller departments that do not regularly interface with the public. These factors are just as relevant as those resulting from how the City administers municipal operations. #3..
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EXHIBIT 4. INHERENT RISK SOURCES & TYPES OF RISKS
Based on information provided and auditor judgement, we assessed each organizational unit and program in terms of the potential risks that could impede effective delivery of services, reduce operational efficiency, or impair transparency and public accountability. In doing so, we prepared “risk profiles” for each department, which include general indicators of the size of the division, a description of the core functions of the division and inherent risks and general concerns associated with the division’s operations. These inherent risks are, in short, those factors that may impede the ability of the division to achieve, in an effective or efficient manner, its core functions.

While this report presents risk ratings for key departments, divisions, and programs, it is important to note that a high-risk score is not indicative of poor performance, lacking internal controls, or bad business practices. Rather, risk scores indicate the extent to which key programmatic or operational areas within City departments present sufficient inherent risks to warrant audit resources, and the extent to which we believe a performance audit of that area will yield value to the City.

To illustrate our assessment of risk associated with the auditable units within each department as compared to each other and to other divisions throughout the City, we include in each department profile a heat map similar to that shown in Exhibit 5. This is meant to illustrate the extent to which, or likelihood that, inherent risks associated with core municipal functions warrant audit resources and the potential impact that such an audit could have in assisting the City of Modesto address current and emerging challenges— that is, the relative value of spending audit resources in one area of municipal government versus another area.
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EXHIBIT 5. SAMPLE HEAT MAP
Based on our assessment of risk, we present numerous audit topics related to each division and/or program. A larger audit could include each of these as a specific audit objective; smaller audits could address just one or two of the topics listed in each profile.

This approach is designed to provide the City with information necessary to develop an audit plan that focuses on those areas within City government that are most likely to benefit from a performance audit. It is also designed to present the rationale behind our risk ratings to the City Council’s Audit Committee, and to facilitate an open and deliberative forum to discuss audit priorities and to determine the focus of limited audit resources.

1.0 2.0

3.0 4.0

5.0 1 2 3 4 5
Likelihood
Impact
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Department Risk Profiles
This section presents background information and risk profiles for each of the City’s key departments, including offices reporting directly to the City Council—the City Manager, City Attorney, and City Clerk—as well as the departments reporting directly to the City Manager: Community and Economic Development; Finance; Fire; Human Resources; Information Technology; Parks, Recreation, and Neighborhoods; Police; Public Works; and Utilities. Each profile includes a discussion of a City department; background information, core functions, key statistics and characteristics, inherent risks, and challenges associated with each; and potential audit topics designed to address those areas where internal audit resources could prove most valuable.

City Attorney
The mission of the City Attorney’s Office is to
provide outstanding legal services to the City of
Modesto. With an approximate budget of $1.8
million—representing less than one percent of
the City’s overall budget—and 5 full-time
equivalent (FTE) positions, the City Attorney’s
Office is responsible for general legal services,
personnel, litigation, community prosecution,
and specialty advice including but not limited to
land use, the environment, eminent domain,
real estate, and the first amendment. The City
Attorney’s Office implements the City Council
and Mayor’s direction and supports the efforts
of staff by providing advice on technical
matters, litigation, and prosecutorial services. The Office’s funding is derived entirely from the City’s General Fund and generates revenue from external sources such as legal service fees to the City.

The City of Modesto employs hybrid model in staffing its City Attorney’s Office. The appointed City Attorney and other attorney personnel are employed by third-party firms specializing in municipal and special district legal services, while four employees of the City Attorney’s Office—including one deputy attorney, two paralegals, and one assistant—are direct employees of the City of Modesto. It is common practice among local governments within California to outsource all or some City Attorney operations, including appointing personnel of private law firms as the City Attorney. Modesto’s hybrid approach provides many of the benefits of this outsourced model, specifically as it relates to the diverse expertise and experience available through a law firm rather than a single individual, as well as many of the benefits of employing in-house staff—primarily, continuity and familiarity with the protocols, culture, and operating environment of the City of Modesto. Exhibit 6 provides a summary of the Department’s fiscal year 2022-23 budgeted expenses for the Office in general.
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EXHIBIT 6. BUDGET BREAKDOWN BY DIVISION
Source: City Budget Book Fiscal Year 2022-23
The City of Modesto’s City Attorney’s Office is organized into both in-house and outsourced professional services, as well as a variety of areas of specialization, including litigation, employment law, finance, election law, and general counsel. This organizational structure is generally reflected in Exhibit 7.

EXHIBIT 7. CITY ATTORNEY ORGANIZATIONAL CHART
Source: Official City Organization Charts and Council Introduction Presentations Risk Analysis
The City Attorney’s Office has a relatively low level of funding and FTE allocation when compared to other city departments, as well as relatively low level of cash or other high-risk assets. Inherent risks associated with the City Attorney’s Office remain relatively low, but include continued adherence to professional standards, the efficient use of professional service contracts in a hybrid model that relies heavily on professional firms, balancing differing perspectives on risk mitigation, and the implementation of business processes and controls to mitigate risk and prevent the loss of City assets. The table below provides an evaluation of key divisions or programs within the Department, along with a description of responsibilities, budget, FTEs, and inherent risks.
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EXHIBIT 8. DIVISION AND PROGRAM DESCRIPTIONS

DIVISION / PROGRAM RESPONSIBILITIES FACTORS CONTRIBUTING TO RISK RATING City Attorney Provide general counsel legal services on behalf of the City, including providing legal advice to City officials and departments; representing the City’s interests in court proceedings; advising City officials on matters relating to municipal law, land use and environmental law, torts and litigation, labor and employment, and public records,
among others; and providing community prosecution
services, including prosecuting violations of City
ordinances.

Budget: $1-5 million FTEs: 0-5
Inherent Risks: Efficiency of
professional services provided by Office;
third party contract services; records
management; privacy security.

Overall, the City Attorney’s Office’s rating is low risk, as illustrated in the risk ranking below.

EXHIBIT 9. PROGRAM RISK RATINGS
Ultimately, the Office of the City Attorney represents relatively low risk in terms of audit priority when compared to other City departments and programs. Performance audit topics of the Office generally would not focus on the exercise of professional judgment or legal counsel, but would rather focus on the efficiency with which the Office manages resources, including internal business processes related to broader municipal responsibilities (such as risk management, in collaboration with Human Resources, contract review and processing, and record retention) and the Office’s administration of legal services contracts (including the Office’s practice requiring City departments to review and sign-off on outside attorney invoices for work performed on their behalf). Therefore, this risk assessment revealed the following potential audit objective:
1) Evaluate the Office’s business processes and information systems to identify potential inefficiencies or opportunities for improvement in the Office’s administrative functions.

City
Attorney

1.0 2.0

3.0 4.0

5.0 1.0 2.0 3.0 4.0 5.0
Likelihood
Impact
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City Clerk
With an approximate budget of $1.8 million—
representing less than one percent of the City’s
overall budget—and 5 FTE positions, the City
Clerk’s Office supports the Mayor and Council
and serves the public by providing records
maintenance and management services. These
services include preparation, posting and
maintenance of agendas, minutes, ordinances,
resolutions and contracts of the City Council;
coordinating advertisement of legal notices to
the Modesto Bee; maintaining the Modesto
Municipal Code, responding to public records
requests in a timely manner; ensuring
compliance with the Public Records Act;
performing duties of Election Official and overseeing all local elections for the City of Modesto and Modesto City Schools Board; receive and publicly open bids for City contracts; administering the oath of office to newly elected officials, and new hires. The City Clerk also oversees Mail Services and audit employee expense claims and reimbursements. The Office’s funding is derived primarily from the City’s General Fund and its Mail Services Internal Service Fund.

The department is organized into three units: City Clerk’s Office, Mail Services, and Elections. Exhibit 10 provides a summary of the Department’s fiscal year 2022-23 budgeted expenses for each division, which includes a budget allocation for the current year election cycle, and Exhibit 11 illustrates the Department’s organizational structure.

EXHIBIT 10. BUDGET BREAKDOWN BY DIVISION
Source: City Budget Book Fiscal Year 2022-23
Note: The City Clerk budgets for Elections during an Election Year and this is solely for the purpose of paying the County of Stanislaus for the cost of administering the election.
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EXHIBIT 11. CITY CLERK’S OFFICE ORGANIZATIONAL STRUCTURE Source: Official City Organization Charts and Council Introduction Presentations Risk Analysis
Inherent risks associated with City Clerk’s Office include: high levels of public relations, compliance with professional standards and state requirements, election compliance, adequate record keeping. The table below provides an evaluation of each division or program within the City Clerk’s Office with a description of responsibilities, budget, FTEs, and inherent risks.

EXHIBIT 12. DIVISION AND PROGRAM DESCRIPTIONS

DIVISION / PROGRAM RESPONSIBILITIES FACTORS CONTRIBUTING TO RISK RATING City Clerk’s Office Attend all regular and special meetings of the Council, and keep an accurate record of the proceedings of the
Council; keep a record of all ordinances of the City,
and of all written resolutions adopted by the Council, in such manner that the information contained therein will be readily accessible to the public; audit City payroll records; receive and conduct bid openings; receive
and process claims against the City, including
subpoenas and summons; and receive and process
Public Records Act requests.

Budget: $0-1 million FTEs: 0-5
Inherent Risks: Inefficiencies that could
impact the receipt and recording of publicly
recorded documents, as well as the
availability of records; cost-effective
administration of document requests;
potentially inefficient or insufficient support
of the Office’s core operations. Further,
workload has increased (e.g., requests for
public records increased from 300/year to
700/year over the past several years) and
reductions in FTEs since the beginning of
the pandemic presents challenges relating
to adequate coverage, cross training, and
records management.
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Mail Services Sorts and delivers mail throughout City Departments and provides mail services at the following locations:

Modesto, Centre Plaza, Corp Yard, Neighborhood
Center, treatment Plant, Dryden, Muni, Cop Shop,
Modesto PD, Museum, Airport, Creekside, Senior
Center, and Utilities.

Budget: $0-1 million FTEs: 0-5
Inherent Risks: Efficiency of operations;
potential for theft in the opening and
processing of mail with cash / checks.

Elections Administer oaths or affirmations and execute affidavits in connection with or pertaining to City affairs or
business; and certify copies of official records of the Clerk’s office; have charge of all City and Board of
Education elections; is Filing Officer of Campaign
Financial Disclosure Statements and Statements of
Economic Interests, as required by State Law.

Budget: $0-1 million FTEs: 0-5
Inherent Risks: The perception that
actions of the Office could unduly impact
the outcome of a fair election, whether
intentional or unintentional; sufficiency of
space.

The City Clerk’s Office has a low budget and FTE allocation when compared to other City departments.

The City Clerk is responsible for a wide range of duties with relatively few staff and limited ability to crosstrain and ensure knowledge transfer. There appears to be some areas—such as the City Clerk’s role in auditing City payroll—that may be outside the role City Clerks generally service in municipal government, but such cases appear to be limited. Because of this, the potential benefits of a performance audit of the City Clerk’s Office are likely to be in assessing the overall efficiency and effectiveness of the Office’s dayto-day operations. With this in mind, we illustrate below the risk rankings of each division or program area in relation to one another.

EXHIBIT 12. PROGRAM RISK RATINGS
The Office of the City Clerk represents relatively low risk in terms of audit priority when compared to other City departments and programs, particularly because of its relatively small budget and limited risk factors.

However, staffing constraints and diverse responsibilities present ongoing challenges for the Office.

Therefore, this risk assessment revealed the following potential audit objective:

City Clerk's
Office
Mail
Services
Elections

1.0 2.0

3.0 4.0

5.0 1.0 2.0 3.0 4.0 5.0
Likelihood
Impact
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1) Evaluate the Office’s business processes, information systems, and workload management practices to identify potential inefficiencies or opportunities for improvement in the Office’s operational activity and administrative functions.

City Manager’s Office
The City Manager is responsible for all operations of city government, making recommendations to the City Council on a variety of issues, carrying out policies and direction from the City Council, enforcing ordinances of the City, appointing, and supervising all City personnel, and being responsive and available to the community. The Office’s funding is derived entirely from the City’s General Fund.

With an approximate annual budget of $3.1
million—representing less than 1 percent of the
City’s overall budget—and 14 authorized FTE
positions (including 1 frozen FTE), the City
Manager is charged with carrying out policies
and direction from the City Council. Specifically,
the City Manager’s Office provides strategic
leadership and implements policy; provides
oversight to all City departments; develops and
recommends alternatives to address current
and future community needs; ensures that City
services are provided equitably and costeffectively; and provides oversight for the development of the City budget. Further, the
City Manager’s Office is responsible for citywide communications, including Community and Media Relations, the City’s website, social media platforms, mobile application interfaces, and collaboration with departmental leadership and public information officers.

In addition to directing and overseeing critical municipal services and initiatives that support and further the City’s strategic objectives—including Public Works, Utilities, Community and Economic Development, Parks and Recreation, and other City programs and departments—the Office of the City Manager also oversees legislative advocacy and constituent services, and houses the Budget Division. Exhibit 13 provides a summary of the Office’s fiscal year 2022-23 budgeted expenses for each division, and Exhibit 14 illustrates the Office’s organizational structure.
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EXHIBIT 13. BUDGET BREAKDOWN BY DIVISION
Source: City Budget Book Fiscal Year 2022-23
EXHIBIT 14. CITY MANAGER’S OFFICE ORGANIZATIONAL STRUCTURE Source: Official City Organization Charts and Council Introduction Presentations Risk Analysis
The City Manager’s Office has a relatively low budget and FTE allocation when compared to other City Departments. However, its role in implementing City policy and strategic initiatives, developing budgets, and monitoring resource allocation, and framing and messaging City priorities and communications place the Office in a position of strategic importance and high public visibility. Exhibit 15 provides an evaluation of key divisions or programs within the City Manager’s Office with a description of responsibilities, budget, FTEs, and inherent risks.
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EXHIBIT 15. DIVISION AND PROGRAM DESCRIPTIONS

DIVISION / PROGRAM RESPONSIBILITIES FACTORS CONTRIBUTING TO RISK RATING Budget Manages the preparation of the annual operating
and capital budgets, including citywide
collaboration on funding strategies, developing,
and executing the Annual Budget publication,
assisting with the development of the five-year
Capital Improvement Plan, maintaining multi-year
financial models, forecasting and monitoring
revenues and expenditures throughout the fiscal
year.

Budget: $0-1 million FTEs: 0-5
Inherent Risks: Reliability of financial models
and forecasts; reasonably accurate budget-toactual monitoring and reporting; compliance with grants and increasing grant footprint;
effectiveness of the City budget as a planning tool
and as a basis for performance measurement;
efficiency of the budgetary process.

City Manager’s
Office
Executes Council direction; provides strategic
leadership and implements policies; acts as
liaison for intergovernmental affairs; provides
oversight to all City departments; manages
interdepartmental initiatives; manages Council
and constituent requests; promotes and
implements performance management and
innovative projects for the organization.

Budget: $1-5 million FTEs: 5-10
Inherent Risks: Coordination and collaboration
among diverse and specialized City departments
and functions; public perception; framing and
messaging of City priorities; cost-effective
contract execution; public perception, framing and
messaging City priorities and communications;
successful engagement with external agencies.

With the exception of the Budget Office, the operational activities of the City Manager’s Office are generally not considered a high-priority subject of internal audit organizations. For instance, Community and Media relations are focused on messaging of the City and they are generally not considered high-risk. Conversely, the Budget Office plays a significant role in the strategic and legislative priorities of the City and is identified as moderate- to high-risk. As is the case with many municipal governments, the ability to prioritize and monitor the allocation of limited resources is of critical importance, particularly during economic downturns.

With these three key risk areas in mind, we illustrate in Exhibit 15 the risk rankings of each division or program area in relation to one another.

EXHIBIT 15. PROGRAM RISK RATINGS
Budget
Office
City Manager's Office

1.0 2.0

3.0 4.0

5.0 1.0 2.0 3.0 4.0 5.0
Likelihood
Impact
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Based on this assessment, there are two audit topics that ranked the highest and warrant consideration for future internal audit planning. These include:

1. Citywide budget and financial planning protocols and practices, including determining the sufficiency of budgetary tools available to City management to monitor budget-to-actual performance, evaluate forecasting models, or assess on a routine basis the financial performance of various City operations.

2. Audit of City Manager’s Performance Measurement System, the purpose of which would be to identify ways to build upon an already strong performance measurement system that is both meaningful to City officials and the public

3. Citywide engagement with the public, including the centralized role of the City Manager’s Office— such as through the GoModesto app, the City’s website, and social media—is efficient and effective, administered in a manner consistent with best and leading practice, and meets the City’s strategic priorities.

Community and Economic Development
The mission of the Community and Economic Development Department (Community and Economic Development or CED) is to enhance the quality of life for residents, businesses, and visitors by promoting and facilitating quality development, investing in and supporting cultural and destination amenities, and designing sustainable roads for motorized and non-motorized modes of transportation.

Community and Economic Development has
an approximate budget of $18.9 million and
represents 5 percent of the City’s overall
budgeted expenditures. Less than $7 million of
those funds come from the General Fund
Operating Budget, while $12 million come from
Measure L funds. Measure L is a one-half
percent sales tax to improve various regional
projects. Additionally, Department revenues
come from various sources such as taxes,
service fees, transportation fees, and grants.

Specifically, the Department receives funds
from Community Facilities District Funds,
Capital Facilities Fees, and Landscape
Maintenance Assessment Districts. Community
Facilities District funds generate just over $6 million per year in revenue and are created to provide a funding and reimbursement mechanism for public facilities and/or services and to ensure new development projects do not solely become the responsibility of the General Fund. Capital Facilities Fees account for administrative costs and are used to offset the impact of growth on community infrastructure. Landscape Maintenance Assessment Districts use property taxes to pay for landscaping, lighting, and other improvements and services in public areas; this fund generates approximately $70,000 per year. #3..
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With 72 authorized FTE positions (including 1 frozen FTE), the Community and Economic Development Department is responsible for all development-related activity in the City of Modesto, including planning and building permit services, building inspections, code enforcement, current and long-range planning, economic development, development engineering, housing and homeless services, and grant administration and related public services.

Community and Economic Development is organized into five divisions: Building Safety/Neighborhood Preservation Unit (NPU), Economic Development, Planning, Engineering, and Community Development.

Exhibit 16 provides a summary of the Department’s fiscal year 2022-23 budgeted expenses for each division, and Exhibit 17 illustrates the Department’s organizational structure.

EXHIBIT 16. BUDGET BREAKDOWN BY DIVISION
Source: City Budget Book Fiscal Year 2022-23
Note: Represents total monies for each division including grants and other revenue that are not part of the General Fund EXHIBIT 17. COMMUNITY AND ECONOMIC DEVELOPMENT DEPARTMENT ORGANIZATIONAL STRUCTURE Source: Official City Organization Charts and Council Introduction Presentations #3..
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Risk Analysis
Community and Economic Development has a moderate level of budget and FTE resources when compared to other City departments, and a relatively low level of at-risk assets; relies heavily on coordination and collaboration between other City departments, regional agencies, and external service providers; facilitates private development and serves a critical role in economic development; and remains highly visible to the public.

Exhibit 18 provides an evaluation of each division or program within Community and Economic Development with a description of responsibilities, budget, FTEs, and inherent risks. These include matters relating to grant compliance, challenges associated with affordable housing and homelessness, transportation project delivery with sales tax revenue and other State and Federal funding allocations, relatively high levels of outsourcing and contract monitoring, recent increases in cannabis licensing, revenue generation, and the potential for fraud, waste, and abuse.

EXHIBIT 18. DEPARTMENT AND PROGRAM DESCRIPTIONS

DIVISION /

PROGRAM

RESPONSIBILITIES FACTORS CONTRIBUTING TO RISK RATING
Building Safety/
Neighborhood
Preservation
Provides building permit application processing, plan
review, construction inspection, records maintenance,
and permit issuance; regulates construction and property use to ensure safe, healthy, sustainable, and accessible environments for occupancy
The Neighborhood Preservation Unit, or code
enforcement, helps maintain and improve the quality of
the community through awareness, education, and
enforcement.

Budget: $1-5 million FTEs: 10-20
Inherent Risks: High levels of public
interaction/perception, above average
health and safety risks, compliance with
state and local laws, consistent application
of code enforcement notices, and the
potential for fraud and abuse.

Economic
Development/
Administration
The division is charged with growing the economy and
enhancing the prosperity and quality of life in Modesto.

Staff are responsible for the City’s economic
development efforts and programs including cannabis
licensing, partnerships with the Convention & Visitors
Bureau, business attraction, retention and expansion,
marketing, business advisory services, etc.

Budget: $0-5 million FTEs: 1-5
Inherent Risks: External factors beyond
the City’s control and the effect on
business of policies and programs of
related City departments and external
agencies.

Planning Provides advanced and current planning services.

Advanced planning is the long-range comprehensive
visioning for future development and infrastructure.

Current planning is the review of entitlement applications and plans for proposed development such as
subdivisions, new commercial and industrial
development, annexations, etc.

Budget: $1-5 million FTEs: 5-10
Inherent Risks: Efficiency of intercity
coordination, timely and responsive
service to applicants, grant compliance,
staff shortages, public interaction, and the
potential for abuse.

Engineering Split into three units or subdivisions, the Engineering division oversees Special Projects, Land Development
Engineering and Transportation Engineering & Design.

Land Development is responsible for maintaining and
upholding the City’s standards and specifications, as well as improvement plans, new maps, transportation permits, and storm water issues. Transportation Engineering and
Design is responsible for the design of various
Budget: $10-25 million FTEs:10-20
Inherent Risks: High levels of interactions
with the public, efficiency of permitting
system, high levels of intercity
coordination, staff shortages, and large
amounts of grant money.
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The functional responsibilities of Community and Economic Development play a critical and visible role in economic development, resident satisfaction, and commercial activity throughout the City, and the functions of Community and Economic Development intersect with other City departments in ways that are unique among other City departments. Ultimately, however, this risk assessment revealed three primary areas of risk associated with Community and Economic Development.

First, a substantial portion of the work of Community and Economic Development relates to the processing of permits. In recent years, spurred by growth in development throughout the City, it has undergone several process improvements, including the implementation of a new permitting system (eTRAKiT), through which employees are able to process permit applications, assess fees, handle payments, and issue permits.

Business processes must be designed to ensure timely and quality service, but must also prevent and/or detect the potential for fraud, waste, or abuse.

Second, the Community and Economic Development receives and utilizes significant grant monies, including HUD monies, for planning and community development purposes. This has taken on an increasingly high profile during a complex environment with increasing homelessness, the COVID-19 pandemic, and rising housing costs. Business processes must be designed to ensure grant compliance; the prevention of fraud, waste, and abuse; and to achieve key program outcomes.

Third, code enforcement activities commonly face challenges including above average health and safety risks and public perception concerns, including the ability of Community and Economic Development to strike a balance between eliciting voluntary compliance versus applying enforcement measures.

With these three key risk areas in mind, we illustrate below the risk rankings of each division or program area in relation to one another.
transportation related CIP projects. Special Projects is responsible for the delivery of large transportation
construction projects (e.g., State Route 132 and
Interchange Reconstruction projects).

Community
Development
Administers all the City’s federal and state funding to support affordable housing and homelessness including
funding from HUD, CDGB, HOME, and ESG and ensures
its timeliness and appropriate use. Division is also
responsible for all infrastructure financing programs.

Budget: $5-10 million FTEs: 10-20
Inherent Risks: Efficiency of professional
services provided, large cash flows, equity
in financial administration, grant
compliance, potential for fraud and abuse,
and external factors outside the City’s
control.
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EXHIBIT 19. PROGRAM RISK RATINGS
Community and Economic Development represents relatively high-risk operations, particularly related to development and permitting functions, which involves significant public interaction and a large volume of monetary transactions, and Community Development, which involves significant grant funding and subrecipient monitoring. Therefore, based on the analysis undertaken in this risk assessment, three performance audits rank as the most important:

1. Performance audit of Community and Economic Development’s recent technological and process improvements (i.e., eTRAKiT) to determine (a) the extent to which the initiative’s goals were met, efficiencies were gained, and service delivery was improved; (b) whether continued opportunities for improvement exist; and (c) whether system controls are sufficient and effective to prevent or detect fraud, waste, and abuse.

2. Performance audit of Community Development’s grant funded programs, including an assessment of grant compliance, internal controls associated with grant programs, subrecipient compliance with City requirements, outreach efforts, efforts to expand the agency’s grant footprint, and the overall effectiveness in achieving program goals.

3. Performance audit of Community and Economic Development’s Code Enforcement operation, to determine the extent to which the program’s activities are consistent with best practices and the City’s strategic goals, its effectiveness in eliciting voluntary compliance, and whether opportunities for improvement exist.

Building Safety &
Neighborhood Preservation
Economic
Development
Planning
Engineering
Community
Development

1.0 2.0

3.0 4.0

5.0 1.0 2.0 3.0 4.0 5.0
Likelihood
Impact
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Finance
The mission of the Modesto Finance
Department (Finance) is to provide efficient
and effective fiduciary control of the City’s
assets and resources, to provide accurate and
useful financial information to City
organizations and the community served, and
to promote sound strategies that will support
the City’s fiscal and operational goals while
preserving the integrity of the organization.

With an approximate budget of $16 million—
representing 4.1 percent of the City’s overall
budget—and 61 FTE positions, Finance
oversees the City's financial functions. These
include the collection, receipt, disbursement
and accounting of all monies received in
accordance with Generally Accepted
Accounting Principles; cash management and
investment of cash balances; financial analysis
and forecasting, administration of a centralized
purchasing system; administration of inventory
stores for operating departments; issuance of new debt instruments and refinancing of existing debt instruments; preparation and development of financial statements and other financial programs; coordination of external audits; grant administration; and oversight and administration of outstanding debt covenants. Finance staff also serve as the primary advisors to the City Manager, City Council and City Departments in financial planning. Finance’s funding is derived primarily through utility fees, taxes, collections, grants, and the City’s Internal Services Fund.

In Fiscal Year 2021-22, Finance cites various accomplishments, including its oversight of the City’s American Rescue Plan funding; implementation of a new policy management platform PolicyTech to track, manage, and distribute all personnel and fiscal policies; and securing of relief funding for Modesto utility customers to cover past due bills during the COVID-19 relief period. Other accomplishments include successful Cannabis and Transient Occupancy audits and implementation of Senate Bill 1383.

Finance is organized into four units: Administration, Accounting, Purchasing, and Revenue Collection and Compliance. Exhibit 20 shows a breakdown of each divisions budgeted expenses for fiscal year 2022-23. #3..
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EXHIBIT 20. BUDGET BREAKDOWN BY DIVISION
Source: FY 2022-23 City Budget Book
Finance allocates functional responsibilities to each of the four divisions as depicted in Exhibit 21.

EXHIBIT 21. FINANCE DEPARTMENT ORGANIZATIONAL STRUCTURE Source: Official City Organization Charts and Council Introduction Presentations Risk Analysis
Finance has a relatively low level of funding and FTEs as compared to other departments, but is responsible for a significantly high level of cash or other high-risk assets such as revenue collection from various sources, state, and federal grant management, and purchasing of good and services. Most of the divisions of Finance perform functions that are common subjects of internal and external audit activities:
inventory management, procurement, grant management, accounting, cash handling, etc. Generally, each employs systems of internal controls to ensure compliance, fiscal integrity, and the prevention of fraud, waste, and abuse. As is typical in many cities, Finance is subject to annual external audits, which focus on #3..
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accounting functions and general financial-related internal controls and has been historically subject to a variety of internal audits over the years.

Inherent risks associated with Finance include ensuring investment policies are fiscally sound and in line with best practices for ensuring compliance with debt and investment policies and asset allocation; engaging in effective cash management practices; complying with grants and increasing grant footprint; preventing and detecting theft; considering the impact of cashiering operations on general accounting functions; and ensuring the most competitive price for high-quality goods or services, transparency in purchasing decisions, and compliance with relevant laws and regulations. Exhibit 22 presents the key divisions/programs administered by Finance, the core responsibilities of each, and key factors contributing to the programs’ risk rating.

EXHIBIT 22. DIVISION/PROGRAM EVALUATION
Most of the divisions in Finance perform functions that are common subjects of internal and external audit activities: inventory management, procurement, grant management, accounting, cash investments, cash handling, etc. Generally, each employs systems of internal controls to ensure compliance, fiscal integrity, and the prevention of fraud, waste, and abuse. As mentioned previously, Finance recently completed audits

DIVISION/PROGRAM RESPONSIBILITIES FACTORS CONTRIBUTING TO RISK RATING Administration Provides leadership and oversight services, cash management and investments, credit
reviews, bond financing, and agenda review.

Budget: $0-1 million FTEs: 0-5
Inherent Risks: Efficiency of services provided;
ensuring investment policies are fiscally sound and
in line with best practices; engaging in effective
cash management practices; and ensuring
compliance with investment policies and asset
allocation.

Accounting Manages the daily activities of the accounting functions (payroll, accounts payable, accounts
receivable, cash management, fixed assets, and
grant management) to accurately record all
financial activity; prepares financial statements,
and coordinates the City’s annual financial audit.

Budget: $1-5 million FTEs: 10-20
Inherent Risks: Accurately and efficiently process
and record all financial activity of the City; prevent
and detect potential of fraud, waste, abuse, or
otherwise the loss of City assets; and ensure
effective management of state and federal grants.

Revenue
Collection and
Compliance
Manages utility billing, cashiering and
collections; business licensing, cannabis taxes,
and Transient Occupancy Tax; citation
processing and adjudication; parking ticket
administration; and receipting of various
payments both on the phone and in person.

Budget: $5-10 million FTEs: 20-50
Inherent Risks: Cash handling; high staff turnover;
multiple cashiering systems and interfaces with the
enterprise system; high levels of customer
interactions; and controls over theft, fraud, waste,
or abuse.

Purchasing Facilitates the competitive procurement of
goods and services; inventory management and
control; maintains and expands relationships
with vendors; ensures that purchases are
acquired legally from responsible providers at
the lowest possible costs; and monitors contract
compliance.

Budget: $5-10 million FTEs:10-20
Inherent Risks: Ensuring the most competitive
price for high-quality goods or services,
transparency in purchasing decisions, and
compliance with relevant laws and regulations;
ensuring proper segregation of duties between
purchasing and accounts payable functions;
avoiding potential conflicts of interest and other
forms of fraud, waste, or abuse.
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related to the transient occupancy tax and cannabis tax revenues. Audit topics in these areas would not be an efficient use of city resources and therefore is not highlighted as being at high risk in this assessment. In addition to the audits, Finance has undergone various process improvements related to citywide purchasing and contracting practices. Further, Finance is in the process of procuring a new point of sales system and would benefit from an assessment or review of how efficiencies in current cashiering process will be affected by this change, as well as how those efficiencies could be improved with the use of a different system. With these key factors in mind, we illustrate below the risk rankings of each division or program area in relation to one another.

EXHIBIT 23. PROGRAM RISK RATINGS
Based on this assessment, there are four audit topics that ranked highest and warrant consideration for future internal audit planning.
1) Evaluate procurement and contracting practices with a focus on ensuring consistency with Finance and Council policies, proper segregation of duties with accounts payable functions, consistency with best practices, the overall efficiency of the City’s purchasing and contracting processes, and whether control deficiencies identified in the past have been corrected and resolved. 2) Evaluate cashiering processes, including those performed through differing information and cashiering systems, the impact that staff turnover has had on cashiering operations, and the role of Finance in ensuring adequate internal and system controls associated with each. 3) Evaluate grant management activities to determine whether existing policies and procedures, systems of internal control, and staffing and system resources are sufficient to administer, optimize, and account for grant monies in an efficient and effective manner. 4) Evaluate cash management, investment, treasury functions, and determine the extent to which investment and cash management activities adhere to best practices and established investment policies.

Finance
Administration
Accounting
Purchasing
Revenue
Collection &
Compliance

1.0 2.0

3.0 4.0

5.0 1.0 2.0 3.0 4.0 5.0
Likelihood
Impact
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Of these audit topics, the first two are ranked highest. Specifically, first, Finance reported past violations of the City’s contracting policies, including contracts exceeding approved thresholds and failures to record all contracts into the City’s enterprise system. Finance noted that substantial process improvements have been implemented to better prevent and detect such occurrences from happening in the future. However, given the passage of several years, we find it prudent to conduct an audit of the City’s contracting and purchasing practices to determine whether adequate controls are now in place and whether further opportunities for improvement exist. Second, with the recent implementation of eTRAKiT and other systems designed to facilitate cash collections, we also find it prudent to evaluate the extent to which cashiering operations, which are administered through a variety of systems that interface with Finance’s enterprise system, are subject to adequate internal and system controls to appropriately account for all transactions and mitigate the risk of fraud or abuse.

Fire
The mission of the Modesto Fire Department (Fire Department) is to proudly serve, protect, and partner with their community for a safer Modesto. With an approximate budget of $58 million—representing 15 percent of the City’s overall budget—and 215 FTE positions, the Fire Department is responsible for providing an all-risk emergency response to the
Modesto citizens and other neighboring towns.

This includes fire suppression and rescue
services, risk mitigation, community
preparedness and education, emergency
medical services (EMS), fire prevention,
hazardous materials, permit and design review,
building inspections, investigations, special
event planning, and overall public safety. In
addition to providing all-risk emergency
response services on behalf of the residents of
Modesto, the Fire Department contracts with
neighboring cities—such as Ceres, Stanislaus,
Turlock, Oakdale, and Salida—to provide fire
suppression, prevention, and other services
throughout the region. Fire department funding is primarily derived from the City’s General Fund and the Fire department generates revenue through contracted services provided to other jurisdictions within the region, such as other municipalities and the Industrial Fire Joint Powers Agency, fire code inspection services, emergency medical service billings, standby services for special events, educational safety programs, advanced life support charges, special permits, and other miscellaneous special services provided to users.

The Fire Department is organized into four divisions/service areas: Support/Business Operations, Operations/Suppression, Contract Agencies, and Community Risk Reduction. Exhibit 24 provides a summary of the Fire Department’s fiscal year 2022-23 budgeted expenses for each division, and Exhibit 25 illustrates the Fire Department’s organizational structure. #3..
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EXHIBIT 24. BUDGET BREAKDOWN BY DIVISION
City Budget Book Fiscal Year 2022-23
EXHIBIT 25. MODESTO FIRE DEPARTMENT ORGANIZATIONAL STRUCTURE Source: Official City Organization Charts and Council Introduction Presentations Risk Analysis
The Fire Department has a relatively high-level budget and moderate FTE allocation when compared to other city departments. Public Safety agencies are inherently high risk—large budgets, significant public profile and scrutiny, large number of at-risk assets and equipment, overtime usage, significant health and safety risks, legal exposure and workers’ compensation claims, and routine understaffing. The City of #3..
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Modesto also contracts its administrative and training services to various other cities, requiring a high degree of coordination. Further, the Fire Department has experienced budget reductions that has affected the timeliness of response times. Currently, the Fire Department meets response time goals 70-80% of the time. This poses a risk to the community as delayed response times could lead to loss of life. Exhibit 26 provides an evaluation of each division or program within the Fire Department with a description of responsibilities, budget, FTEs, and inherent risks.

EXHIBIT 26. DIVISION AND PROGRAM DESCRIPTIONS

DIVISION/PROGRAM RESPONSIBILITIES FACTORS CONTRIBUTING TO RISK RATING Support/Business
Operations
Provides administrative oversight for the department in terms of human resources and labor management, fiscal
management and budget, public information, facilities
and fleet maintenance, data analysis and reporting, IT
support and payroll.

Budget: $5-10 million FTEs: 5-10
Inherent Risks: High levels of inner-city
coordination.

Operations /
Suppression
Provides “all-risk” emergency response. Calls for service include a wide spectrum of medical aids, technical
rescues, public assists, hazardous materials, structure fires, vehicle accidents, and special operations such as high and low angle rescues, confined space rescues
and any other rescue that may require their specialized equipment. This division is also responsible for providing training for both firefighters in the academy as well as continuing education and training to all members of the department.

Budget: $25+ million FTEs: 50+
Inherent Risks: Health and safety risks,
staff and resource challenges and
efficiencies, technological efficiencies,
asset management, overtime usage and
cost controls concerns, the efficacy of
newly-implemented EMS billing protocols,
and the potential for abuse.

Community Risk
Reduction
Provides services to the community to reduce the loss of life and protect citizens from the threat of unwanted fires by providing fire and life safety and building code
inspections, new construction inspections, plan review
of construction documents, public fire safety education, special event planning and activities, and investigations into the origins and causes of fires.

Budget: $1-5 million FTEs: 5-10
Inherent Risks: High levels of public
interaction and timeliness of building
inspections and fire hazard identification.

Contract Agencies Provides full Service Operational Contract Services for the following agencies: City of Ceres, City of Oakdale, Oakdale Fire Protection District, and the Salida Fire
Protection District. Fire department also provides
administrative contract services agreements with the
City of Turlock Fire Department and the Stanislaus
Consolidated Fire Protection District
Budget: $10-25 million FTEs: 1-5
Inherent Risks: Efficiency of professional
services and high levels of inner and outer
city coordination.

Inherent risks associated with the Fire Department include: a high degree of public interaction, compliance with professional standards, establishing effective fire prevention strategies and response times, cost controls associated with contract services, necessary overtime costs, allocation of staffing (civilian v. sworn), inventory control and the potential for loss of high-risk assets, health and safety risks, and the potential for fraud, waste, and abuse. With these key risk areas in mind, we illustrate, in Exhibit 27, the risk rankings of each division or program area in relation to one another. #3..
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EXHIBIT 27. PROGRAM RISK RATINGS
Based on our assessment of management input, internal audit observations, or auditing best practices, we believe that consideration of the following topics are warranted:
(1) The effectiveness and efficiency of internal controls associated with overseeing and administering the Fire Department’s contract services, and its cost-recovery methods. (2) Permitting and inspection processes to determine whether the Community Risk Reduction services meet plan review and inspection timeliness standards (e.g., inspection cycles, review turnaround times, etc.)
(3) The Fire Department emergency response times and trends. (4) Inventory management, including equipment and other sensitive assets. (5) Staffing Study, including shift scheduling, civilian versus sworn staffing, and recruitment strategies. (6) Use of and control over overtime.

Human Resources
The mission of the Modesto Human Resources department (Human Resources) is to recruit and retain a qualified and diverse workforce to meet the varied needs of the organization; to train and develop the workforce toward performance that exceeds community expectations; and to recognize and minimize the risk of loss associated with the provision of City services.

Support/Business
Operations
Operations/Suppression
Contract
Agencies
Community Risk
Reduction

1.0 2.0

3.0 4.0

5.0 1.0 2.0 3.0 4.0 5.0
Likelihood
Impact
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With an approximate budget of $22.4 million—
representing 6 percent of the City’s overall
budget—and 18 FTE positions, the Human
Resources Department is responsible for
planning, coordinating, and administering a
comprehensive human resources management
program. This includes developing and
administering the City’s personnel system,
recruiting and hiring, training and development,
classification and pay administration, employee
benefits including a wellness initiative and
disability programs, employee and labor
relations, employee recordkeeping, risk
management, and other areas of human
resources management. Human Resources is
organized into three divisions: Administration, Employee Benefits, and Risk Management. Exhibit 28 provides a breakdown of each division’s budgeted expenses for fiscal year 2022-23.

EXHIBIT 28. BUDGET BREAKDOWN BY DIVISION
Source: FY 2022-2023 City Budget Book
Human Resources also administers Modesto’s claims for workers’ compensation benefits, working with a third-party administrator to monitor, control and resolve litigated claims, and provides training for various departments to minimize the potential risk of future losses. This department is also responsible for staff development to provide an opportunity for employees to have a direct impact on the workplace through participation in joint problem-solving activities with management and support continuing education for professional growth. Below is the organizational chart with corresponding roles and responsibilities. #3..
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EXHIBIT 29. HUMAN RESOURCES ORGANIZATIONAL CHART
Source: Official City Organization Charts, Budget Workshop Presentations Risk Analysis
Human Resources has a moderate-level budget and low FTE allocation when compared to other City departments. Like other agencies, however, Human Resources serves a critical role in organization-wide risk management—ensuring compliance with a wide range of federal and state laws—and in defining workplace culture. Inherent risks include talent management; recruiting efforts; effective classification and compensation structures; workforce development practices, and other efforts that may be insufficient to attract, retain, and motivate a talented and qualified workforce; controls relating to confidential employee data; employee compensation; legal compliance; and ensuring the Human Resources Information System, benefits enrollment processes, and related internal controls effectively ensure City employees are compensated as authorized and appropriate. Other risks include minimizing costs by striking the best balance between risk retention and risk transfer; establishing adequate reserves; routinely evaluating insurance markets to ensure cost-effective risk transfer; and ensuring effective risk mitigation efforts.

Exhibit 30 provides an evaluation of each division or program within Human Resources with a description of responsibilities, budget, FTEs, and inherent risks.

EXHIBIT 30. DIVISION/PROGRAM EVALUATION

DIVISION/PROGRAM RESPONSIBILITIES FACTORS CONTRIBUTING TO RISK SCORE Administration Recruits, hires, and retains qualified employees; manages the City’s classification and compensation
structure; administers workers compensation, leaves
of absence, and return-to-work programs; develops
and coordinates city-wide training programs;
administers labor and employee relations; personnel
file recordkeeping; and COVID case management.

Budget: $1-5 million FTEs: 10-20
Inherent Risks: Talent management,
recruiting efforts, classification and
compensation structures, workforce
development practices, and other efforts that
may be insufficient to attract, retain, and
motivate a talented and qualified workforce;
controls relating to confidential data, employee
compensation, and legal compliance.
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Employee
Benefits
Administers a full range of health, life, EAP,
retirement, and other group benefits offered to
employees; manages benefit and third-party
administrator contracts; oversees enrollment and
eligibility processes.
.

Budget: 5-10 million FTEs: 0-5
Inherent Risks: The potential for inefficient
management and administration of plan
offerings; the efficient and easy enrollment of
employees into benefit plans; the potential that
barriers to enrollment will reflect poorly on
benefit offerings; the potential that ineligible
dependents receiving benefits, and the risk
that employee benefit offerings may be
insufficient to attract, retain, and motivate a
talented and qualified workforce.

Risk Management Identify and assess risks, procure, and work with the City’s broker of record; conduct risk retention
analyses; administer self-insurance program;
procure insurance products; perform claims handling
and disposition including recovery, and administer
Worker's Compensation program and safety
program; manage loss control/prevention.

Budget: $10-25 million FTEs: 0-5
Inherent Risks: Minimizing cost by striking
the best balance between risk retention and
risk transfer; establishing adequate reserves;
routinely evaluating insurance markets to
ensure cost-effective risk transfer; and
ensuring effective risk mitigation efforts.

Human Resources has recently undergone new leadership and is recovering from high levels of turnover over the last few years. Most recently, the City’s 2019 Risk Management Report revealed several opportunities for improvement in the areas of framework, governance, self-insured funding policies and practices, general liability program, and its health and safety program. According to management, Human Resources staff has since then completed most recommendations in the risk report and are in the process of various internal administrative improvements. While staffing levels have stabilized since 2019, there are opportunities within Human Resources where extra staff would be beneficial, such as additional help in administrative services related to employee benefits.

Other cited areas of improvement relate to the use of its human resources software and physical office space. Currently, Human Resources uses a few different systems to conduct their operations (Neogov and Oracle). Neogov is a public sector human resource software. Modesto utilizes Neogov’s modules for performance management, goals, professional development, improvement plans, onboarding and offboarding. Human Resources also uses “Oracle”, a financial database system, for its added HR component. Management expressed concern over the systems compatibility with Neogov. Currently, staff inputs the same data into two different systems and thus this becomes an issue of inefficiency, and poses a risk of incorrect data entry. Further, due to the effects of the COVID-19 pandemic, the City of Modesto underwent a citywide hiring and purchasing freeze. This affected various departments within the City as loss of experienced staff has reportedly resulted in significant loss of institutional knowledge. As the State has made the move to reopen its economy, City departments find that they are struggling to meet operational needs with current staffing levels. This poses a challenge to the City—and many employers— and is exacerbated by relatively low compensation rates. According to compensation studies, the City’s compensation is approximately 7 percent below market when compared to similarly situated employers.

With these three key risk areas in mind, we illustrate below the risk rankings of each division or program area in relation to one another.
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EXHIBIT 31. PROGRAM RISK RATINGS
Based on our assessment of management input, internal audit observations, or auditing best practices, we believe that consideration of the following topics are warranted. 1) Determine whether the City’s human resources management activities are consistent with industry standards; sufficient to ensure compliance with federal, state, and local laws and regulations; effective in attracting, retaining, and motivating a highly talented, qualified, and effective workforce; and appropriately resourced and right-sized for the City of Modesto. This should include key elements of human resources management, such as policies and procedures related to and its administration of the following:
i. Hiring and Recruiting
ii. Classification and Compensation
iii. Employee Recordkeeping
iv. Human Resources Information System Functionality & Controls, including the efficiency between Oracle and NEOGOV systems in data entry and record retention v. Employee Relations and Performance Management
vi. Benefits Management
vii. Workplace Investigations
viii. Payroll Management (in coordination with Finance) ix. Professional and Workforce Development, Training, and Succession Planning x. Workplace Health & Safety
xi. State and Federal Compliance
Human Resource
Admin
Employee
Benefits
Risk Management

1.0 2.0

3.0 4.0

5.0 1.0 2.0 3.0 4.0 5.0
Likelihood
Impact
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2) Evaluate risk management practices, including the City’s reliance on third-party administrators and service providers, risk retention and transfer evaluations, claims processing, and workplace health and safety programs, as well as existing workload demands and future opportunities to enhance risk management operations in a growing City government. 3) Evaluate the administration of compensation practices to ensure employer costs are appropriately controlled by determining whether benefit enrollment processes appropriately control employee enrollment and cost-sharing, including the verification of dependent eligibility, and the recording of employee compensation within Oracle to ensure compensation (including bonuses and other differential pay) are appropriately approved and authorized.

Of these three potential audits, we find the first—a performance audit of the City’s human resources management functions—to be the highest priority. Risk management operations has undergone an independent assessment in the recent past, and the Human Resources Department has noted already existing controls related to the administration of compensation and benefits. Questions remain, however, whether human resources management functions are sufficiently resourced, relevant policies and procedures are sufficiently up-to-date, information systems are adequately streamlined, and processes are as efficient and effective as desired. Because of this, we believe a performance audit of the employee lifecycle—recruiting, onboarding, record keeping, training, compensation, offboarding, etc.—would provide the City with the greatest value at this time.

Information Technology
The mission of the Information Technology
Department (IT Department) is to build and
empower a smart, digital city providing
innovative technology solutions that support
City departments and the public. With an
approximate budget of $10.4 million—
representing 2.2 percent of the City’s overall
budget—and 36 FTE positions, the IT
Department provides technical customer
service and support to City departments as well
as a growing community of residents,
businesses, and visitors within the City of
Modesto. In doing so, it provides GIS and data
analytics, enterprise and business applications
development and support, enterprise technology services, project services and contracts management, cyber security, website development and maintenance, and other support services. Department funding and revenues primarily come from the Information and Technology Services Fund, which is an internal service fund that uses monies to upgrade and maintain the City’s network and technology infrastructure, and to develop and implement a coordinated city-wide information technology plan. #3..
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The IT Department is organized into four divisions: Enterprise Applications, Infrastructure, Administration, and Security. The City is in the process of adding a public safety division that will focus on Police and Fire operations, which is expected to fall within the Department’s Infrastructure Division. Exhibit 32 provides a summary of the IT Department’s fiscal year 2022-23 budgeted expenses for each division, and Exhibit 33 illustrates the IT Department’s organizational structure.

EXHIBIT 32. BUDGET BREAKDOWN BY DIVISION
Source: City Budget Book fiscal Year 2022-23
The IT Department is an Internal Service Fund (ISF), a cost recovery model. Funding is received through allocation charges to other City departments for services.

EXHIBIT 33. INFORMATION TECHNOLOGY DEPARTMENT ORGANIZATIONAL STRUCTURE Source: Official City Organization Charts and Council Introduction Presentations #3..
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Risk Analysis
The IT Department has a moderate-level budget and FTE allocation when compared to other departments, with a higher-than-average level of sensitive assets, particularly computers and small peripherals. Like most information technology departments in municipal governments, inherent risks associated with the IT Department include:
• Cybersecurity and network hygiene.
• Sufficiency of systems and applications to meet end user needs. • Data management.
• Customer service.
• Controlling sensitive assets and sensitive data.
• Maintaining cost-efficiency in information technology procurement. • Reliability and functionality of communications equipment.

The following exhibit provides an evaluation of each division or program within the IT Department with a description of responsibilities, budget, FTEs, and inherent risks.

EXHIBIT 34. DIVISION AND PROGRAM DESCRIPTIONS

DIVISION/PROGRAM RESPONSIBILITIES FACTORS CONTRIBUTING TO RISK RATING Administration Responsible for financial oversight for the IT Department.

Provides oversight for the preparation of the annual
budget; ensures compliance with City procurement
policies; prepares purchase requisitions, RFPs, and all procurement activities for the department.

Budget: $0-1 million FTEs: 10-20
Inherent Risks: Efficiency of services
provided to IT Department programs;
maintaining cost-efficiency and
compliance in information technology
procurement.

Security Responsible for ensuring protection against cybersecurity threats and enhancements to ensure that City networks
and infrastructure are safe and reliable, including
overseeing the security of IT organizations, implementing spam filters and scan servers, managing public websites, and ensuring proper disaster recovery protocols.

Budget: $0-1 million FTEs: 0-5
Inherent Risks: Cybersecurity and
network hygiene; reliability and
functionality of communications
equipment; ensuring proper controls over
sensitive assets and sensitive data; and
updating disaster recovery plans.

Enterprise
Applications
Responsible for implementation, maintenance, and
support of business software applications utilized by all City departments. Some major applications supported
include the financial system, Payroll, Human Resources, Budget, GIS, Utility Billing and Customer Service, Agenda Management, Public Safety, Parks Reservations, and
GoModesto.

Budget: $1-5 million FTEs: 10-20
Inherent Risks: Sufficiency of systems
and applications to meet end user needs;
data management; customer service;
controlling sensitive assets and sensitive
data; reliability and functionality of
communications equipment.
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Infrastructure Responsible for technical infrastructure, allowing delivery and execution of critical systems within the City, including implementing, maintaining, and supporting the City’s data communications network, internet, telephone systems,
servers, email system, and the City’s desktops, printers, mobile devices, phones, and network infrastructure.

Budget: $5-10 million FTEs: 20-50
Inherent Risks: Availability of the network
(requires redundancy for critical access
items); Customer service; controlling
sensitive assets and sensitive data;
ensuring the information technology
infrastructure is designed to meet current
and future needs of City employees,
businesses, and residents.

Based on this assessment, we find that all key programs and divisions within the IT Department represent medium- to high-risk, with the exception of Administration. Citywide, management expressed general satisfaction with the City’s information systems—though there was hope that enhanced technology capabilities would increase operational efficiencies and improve service to the public. Overall, there appeared to be a high level of satisfaction with the services provided by the IT Department and the direction it is heading, but also a recognition that the City’s information technology resources are outdated and underutilized. The IT Department management described numerous initiatives currently underway, including significantly enhancing its focus on public safety, implementing a new citywide service request platform, managing a backlog of service requests, addressing limited data management capabilities, and evaluating a large portfolio of antiquated applications with limited capacity.

Further, the Department recently conducted an internal cybersecurity assessment that identified significant deficiencies in the City’s security system. Specifically, the assessment revealed that the City is at a higher than desirable risk of vulnerability to threat actors and requires more investment in cybersecurity tools to help proactively detect, prevent, and/or recover from an attack. Below, we illustrate the relative risk ratings of the IT Department’s core operating divisions.

EXHIBIT 35. PROGRAM RISK RATINGS
Administration
Security Enterprise
Applications
Infrastructure

1.0 2.0

3.0 4.0

5.0 1.0 2.0 3.0 4.0 5.0
Likelihood
Impact
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Information technology is generally considered to be a moderate- to high-risk function in any government organization, and recommended performance audits typically focus on:
(1) Cybersecurity and network hygiene;
(2) Data management protocols;
(3) Customer service efficiency;
(4) Disaster recovery planning;
(5) Cost-effectiveness of operations, including contracting and purchasing; and (6) Information technology project management policies, processes, and practices, and the consistency of the IT Department’s efforts with best practices.

Of these general topics we find that cybersecurity is of paramount concern and the highest priority audit topic for the City of Modesto.

Parks, Recreation, and Neighborhoods
The mission of the Parks, Recreation, and
Neighborhoods Department (Parks
Department) is to serve the citizens of Modesto
through quality recreational programming,
welcoming community centers, active
neighborhood engagements, a variety of
cultural awareness events, inviting destinations
and attractions, and planning and operation of
the City’s vibrant park and trail systems.

With an approximate budget of $21.2 million—
representing 5.4 percent of the City’s overall
budgeted expenditures—and 53.75 authorized
FTE positions (including 1 frozen FTE), the
Parks Department oversees the planning,
development, and maintenance of 76 community, neighborhood and regional parks, trails, and sports and recreational venues. In addition to full time staff, the Parks Department has over 300 part time employees that are critical for most department operations. The Parks Department’s funding primarily comes from the City’s General Fund and “Other” sources. The Parks Department generates revenue through various grants, recreation and neighborhood fees, and a Non-Capital Parks Fund that generates revenue from the Stanislaus Community Foundation. The Parks Department provides a variety of services and recreational activities to the community such as, after school programs, adaptive youth and adult programs, sports and aquatics programs, senior programs, and volunteerism. In addition to the many park, recreation, and community services the department organizes and operates, the Parks Department is also responsible for administering business contracts for the operation of the Modesto Centre Plaza, historical properties, and the John Thurman Field Ballpark. It also coordinates guest services for park and facility reservations and program registrations.
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The Parks Department consists of four divisions: Administration and Facilities, Recreation and Neighborhoods, Parks Planning and Development, and Park Operations and Maintenance. Exhibit 36 provides a summary of the Department’s fiscal year 2022-23 budgeted expenses for each division, and Exhibit 37 illustrates the Parks Department’s organizational structure.

EXHIBIT 36. BUDGET BREAKDOWN BY DIVISION
Source: City Budget Book Fiscal Year 2022-23
EXHIBIT 37. PARKS, RECREATION, AND NEIGHBORHOODS DEPARTMENT ORGANIZATIONAL STRUCTURE Source: Official City Organization Charts, New Council Introduction Presentations Risk Analysis
The Parks Department has a moderate- to high-level of funding/FTEs when compared to other City departments/offices, and a high level of cash or other high-risk assets and equipment. Exhibit 38 provides #3..
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an evaluation of each division or program within the Parks Department with a description of responsibilities, budget, FTEs, and inherent risks. These include matters relating to grant compliance, the effects of COVID19 on revenue-generating activities, project management on capital improvement projects, high-levels of public visibility and engagement, revenue generation and the potential for abuse, significant levels of deferred maintenance, coordination among regional partners, complex environment with increasing homelessness, and recent reorganizational efforts. Further, the Parks Department has a deferred liability of more than $74 million and should be considered a high risk to the City. Exhibit 38 provides an overview of each division/program as well as relevant risk factors.

EXHIBIT 38. DIVISION AND PROGRAM DESCRIPTIONS

DIVISION/PROGRAM RESPONSIBILITIES FACTORS CONTRIBUTING TO RISK RATING Administration
and Facilities
Administration of the Parks Department, facilities,
management, and guest services. Oversees the
management and operation of Modesto Centre Plaza,
McHenry Mansion, McHenry Museum, John Thurman
Field, and two golf courses. It also administers business contracts and coordinates reservations for park, facility, and field rentals.

Budget: $5-10 million FTEs: 10-20
Inherent Risks: Federal grant
compliance, coordination among regional
partners, low staff levels, and economic
effects imposed by the COVID-19
pandemic. City should also evaluate
current contracts and ensure they are
meeting the city's needs.

Recreation and
Neighborhoods
Provides services for recreation operations, sports, and aquatics, youth centers, adaptive programs, neighborhood engagement, soccer complex management; community
events, Culture and Youth Commission; community center
programs and operations.

Budget: $5-10 million FTEs: 10-20
Inherent Risks: Low staff levels,
economic effects imposed by the COVID19 pandemic, public health and safety, high level of public engagement.

Planning and
Development
Acquisition, design, & construction of new parks or other large community projects. Provides landscape and
irrigation construction plan review for commercial and
residential development, submits grants for state and
federal funding, and helps manage Tuolumne River
Regional Park. Coordinates the “Park Partners Program”
which offers community groups the opportunity to partner with the Parks Department to make improvements to their neighborhood parks and amenities.

Budget: $1-5 million FTEs: 0-5
Inherent Risks: Federal grant
compliance, high public engagement, low
staff levels, economic effects imposed by
the COVID-19 pandemic, health and
safety.

Park Operations
and Maintenance
Maintenance division of all 76 City Parks and recreational facilities. Staff prepares sites for park, picnic, and ball field rentals and provides preparation and clean up assistance at community events. They oversee the City’s landscaping contract with Grover Landscaping. In addition, this division provides vegetation management, fire break, and
abatement services throughout the City.

Budget: $5-10 million FTEs: 20-50
Inherent Risks: Worker Health and
Safety, low staff levels, coordination with
other divisions, deferred maintenance,
economic effects imposed by the COVID19 pandemic, growing number of homelessness in parks.

The Parks Department has a moderate level of budget and FTE resources when compared to other departments, and a moderate level of at-risk assets. It provides a variety of functions that vary from contract management, development facilitation, maintenance, and recreation services to the public. Some risks within the Parks Department include health and safety for visitors and staff; cash handling and payment processing at park locations; ensuring accessibility and being responsive to recreational needs; #3..
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lacking technology, including a reliable asset maintenance system; maintaining reliable revenue streams; maintaining the park system in a cost-effective manner; and maintaining adequate funding. In Exhibit 39, we illustrate the relative risk ratings of the Parks Department’s core operating divisions.

EXHIBIT 39. PROGRAM RISK RATINGS
Due to the restructuring of the Parks Department within the last decade, expansive services, large sum of deferred maintenance, and the large number or parks and facilities, the City would benefit from performance audits involving the following topics.
1) Evaluate the Parks Department’s strategic planning, particularly as it relates to:
a. Capital asset planning and the impacts on future operating costs. b. Recreational programming, utilization, and responsiveness to community needs. c. Maintenance programming and the approaches taken by the Department to assess and maintain its asset infrastructure, as well as staffing levels to adequately maintain City assets.
2) Evaluate facility contracts, including those associated with the Convention Center, John Thurman Stadium, and municipal golf courses.
3) Evaluate capital project management and project delivery functions within the Parks Department and in relation to the Department of Public Works.
4) Evaluate the Parks Department’s performance measurement system and its effectiveness in capturing relevant metrics regarding the utilization of park assets and recreational programming.

Of these, we find the first audit topic to be the highest priority. Given the restructuring of the Parks Department within the last decade and the impacts of the pandemic on the Parks Department, an overall assessment of the Parks Department’s strategic approach to capital, recreational, and maintenance Parks
Administration
and Facilities
Recreation and
Neighborhoods
Parks Planning
and Development
Park Operations
and Maintenence

1.0 2.0

3.0 4.0

5.0 1.0 2.0 3.0 4.0 5.0
Likelihood
Impact
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planning efforts will enable the City to determine whether the Parks Department is right-sized and well positioned to serve City residents moving forward.

Police
The mission of the Modesto Police Department
(MPD) is to drive the crime rate down and
improve the quality of life in the City of
Modesto. With an approximate budget of $76.8
million—representing 20 percent of the City’s
overall budget—and 310 authorized FTE
positions (including 8 frozen FTEs), the MPD
represents the largest department within the
City. The MPD’s funding is primarily derived
from the City’s General Fund and it generates
revenue through service fees such fees and
charges for bookings, disturbance responses,
permits, property impounds, misdemeanors
citations, providing reports, false alarm
responses, property storage for arrestees, prisoner medical expenses, and driving under the influence arrest-related costs. The core function of the MPD is to provide police services such as routine patrols, developing relationships and partnerships with Modesto communities, traffic law enforcement, accident investigation, responses to calls for assistance, crime prevention, secure city facilities, investigate criminal activity, and preparing cases for the District Attorney’s Office.

In addition to the core functions mentioned above, the MPD offers a variety of services to the community such as a camera registry program; a community health and assistance team; crime free multi-housing; neighborhood watch; vacation house check; and a “Youth Wake-Up” program. Further, in recent years, the MPD has implemented the Community Health and Assistance Team, or C.H.A.T., a program designed to use trained Outreach Specialists to respond to qualifying 911 calls, received through the 911 communications center, for mental health crises and similar non-criminal, non-violent incidents.

The MPD is organized into three divisions: Operations, Investigative Services, and Support Services.

Exhibit 40 provides a breakdown of each division’s budgeted expenses for fiscal year 2022-23. #3..
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EXHIBIT 40. BUDGET BREAKDOWN BY DIVISION
Source: FY 2022-23 City Budget Book
Exhibit 41 provides an overview of the organizational structure and corresponding areas of responsibility.

EXHIBIT 41. MODESTO POLICE DEPARTMENT ORGANIZATIONAL STRUCTURE Source: Official City Organization Charts and Council Introduction Presentations Risk Analysis
Law enforcement agencies are inherently high-risk—large budgets, significant public profile and scrutiny, large number of at-risk assets (equipment, weapons, cash, evidence, and other assets), overtime usage, significant health and safety risks, legal exposure, and routine understaffing. The following table provides an evaluation of each division or program within the MPD with a description of responsibilities, budget, FTEs, and inherent risks.
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EXHIBIT 42. DIVISION AND PROGRAM DESCRIPTIONS
Inherent risks associated with the Police Department include: public relations, compliance with professional standards and state requirements, establishing effective policing strategies, potential for abuse, response times, unnecessary overtime costs, contract services, ability to effectively patrol, prevent crime, and affect arrests; allocation of staffing (civilian v. sworn), inventory control (both assets and evidence), the ability to effectively prevent crime, unnecessary overtime costs, ability to assess fees and collect payments, the potential for theft or loss of monies, loss of high-risk assets, and health and safety risks. Further, the potential for fraud, waste, and abuse remains high in the field of law enforcement.

At the same time, the MPD is subject to routine POST audits/reviews at least annually, and is currently in the process of overhauling accountability and oversight efforts. Specifically, the Modesto City Council approved forming a Community Police Review Board, which will hold monthly public meetings to promote oversight, accountability, and community engagement. The City has begun to solicit firms to serve in the role of Independent Police Auditor, which will require the review of and reporting on all closed investigations involving the use of deadly force, in-custody deaths, and bias-based policing complaints, as well as a random selection of one third of citizens’ complaints and one quarter of all use-of-force reviews. Overall, it appears that the MPD welcomes insights presented through the internal audit process and is mindful of the need to ensure internal control and operational efficiency within the agency.

With these key factors in mind, we illustrate in Exhibit 43 the risk rankings of each division or program area in relation to one another.

DIVISION/PROGRAM RESPONSIBILITIES FACTORS CONTRIBUTING TO RISK RATING Operations Provides core uniformed police services (Patrol) and call response services, including emergency incident
response, routine call response and collision
investigation; conducts law and regulation
enforcement, as well as preliminary crime scene
investigations, nuisance and criminal investigations,
proactive patrol activities and data analysis; utilizes innovative crime reduction strategies.

Budget: $25+ million FTEs: 50+
Inherent Risks: Public relations, health and
safety, increasing challenges in filling vacant
positions, potential for abuse, response times,
unnecessary overtime costs, efficacy of
information technology resources, contract
services, and ability to effectively patrol,
prevent crime, and affect arrests.

Investigative
Services
Investigates felony cases (Special Units); prepares
cases for criminal prosecution; conducts specialized
investigations and works collaboratively with local
state, and federal agencies
Budget: $25+ million FTEs: 50+
Inherent Risks: Public relations, allocation of
staffing (civilian v. sworn), inventory control—
both assets and evidence—and ability to
effectively prevent crime, and affect arrests.

Support Services Provides logistical, technical, and administrative support to the Department; oversees all personnel
matters (hiring, promotions, workers comp, etc.);
assures the MPD operated effectively and efficiently
24/7; conducts annual audits (property and evidence,
annual use of force audit, pursuit audits); conducts
firearm audits once per year (armorers do firearms
inspections); complies with POST requirements.

Budget: $10-25 million FTEs: 50+
Inherent Risks: Public relations, potential for
abuse, allocation of staffing (civilian v. sworn),
inventory control—both assets and evidence—
unnecessary overtime costs, ability to assess
fees and collect payments.
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EXHIBIT 43. PROGRAM RISK RATINGS
Based on this assessment, all key programs and divisions within the MPD represent medium- to high-risk.

This is attributable to the nature of law enforcement in general and is to be expected of any law enforcement agency. Because law enforcement agencies are inherently high-risk, there is no shortage of potential audit topics. Frequently, law enforcement audits and evaluations focus on staffing and overtime because of the impact both have on the operational efficiency and effectiveness of an organization.

Based on our assessment of management input, internal audit observations, or auditing best practices, we believe that consideration of the following topics are warranted:
1) Inventory management, including equipment, cash, weapons, evidence, and other sensitive assets; 2) Facility condition assessment;
3) Staffing Study, including shift scheduling, civilian v. sworn staffing, and recruitment strategies; 4) Use of and control over overtime; and
5) Effectiveness of the civilian outreach program (C.H.A.T).

Although the City is in the process of implementing various changes, the review board and independent auditor will likely not begin operations until after May of 2023. Because of the impending implementation of the independent police auditor, we recommend holding off on a performance audit of the MPD until the police auditor is appointed and, in a position to effectively establish the audit function. At that point, and after consideration of the how the scope of responsibility of the police auditor is implemented in practice, we recommend evaluating whether the potential audit topics identified above remain valid prior to selecting one for the upcoming audit plan. Of the audit topics listed, however, we believe the first audit topic should remain the top priority for consideration, as it is and will remain a high-risk area for any law enforcement agency.

Operations
Investigative
Services
Division
Support
Services

1.0 2.0

3.0 4.0

5.0 1.0 2.0 3.0 4.0 5.0
Likelihood
Impact
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Public Works
The mission of the Public Works Department
(Public Works) is to design, construct, operate
and maintain public infrastructure efficiently
and effectively in order to protect public safety
and enhance the quality of community life. With
an approximate budget of $59.2 million—
representing 12.7 percent of the City’s overall
budget—and 203 FTE positions, Public Works
provides capital improvement, maintenance,
and operational services for the City of
Modesto’s airport, streets, traffic control
systems, public buildings, parking, fleet
vehicles, urban forest, waste hauling, and
recycling and green waste collection. Public
Works provides design, construction, and maintenance services to operate the City’s existing transportation infrastructure, and operates city building and parking services. Its funding is derived from various sources including the General Fund, utility fees and taxes, transportation fees, and internal service fees.

Public Works is organized into six division areas: Administration; Fleet, Streets, and Airports; Solid Waste; Building and Parking Services; Traffic Engineering and Operations; and Forestry, Green Waste, and Street Sweeping. Exhibit 44 illustrates the Public Works’ organizational structure, and Exhibit 45 provides a summary of the Public Works’ fiscal year 2022-23 budgeted expenses for each division.

EXHIBIT 44. PUBLIC WORKS ORGANIZATIONAL STRUCTURE
Source: Official City Organization Charts and New Council Introduction Presentations #3..
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EXHIBIT 45. BUDGET BREAKDOWN BY DIVISION3
Source: City Budget Book Fiscal Year 2022-23
Risk Analysis
Nearly every program in Public Works can be considered moderate- to high-risk, primarily because of the public resources allocated to the development and preservation of public infrastructure. With the exception of the its Administration division, the importance of and the resources managed by each division would warrant a performance audit at some point. The following table provides an evaluation of key divisions or programs within Public Works, along with a description of responsibilities, budget, FTEs, and inherent risks.

EXHIBIT 46. DIVISION AND PROGRAM DESCRIPTIONS

DIVISION/PROGRAM RESPONSIBILITIES FACTORS CONTRIBUTING TO RISK RATING Public Works
Administration &
City Services
Provides policy direction and support to all the
divisions in Public Works. Administrative serves as
the point of contact for citizens as well as Public
Works employees. This also includes City funding of
the Stanislaus Regional Transportation Authority
and 10th Street Joint Power Agency services.

Budget: $1-5 million FTEs: 0- 5
Inherent Risks: Efficiency of professional
services provided to all programs; ensuring
compliance with related contracts and franchise
agreements; ensuring competitive procurement
for all assets.

Fleet Procures and maintains the City’s fleet of 1,250
vehicles and equipment, maintains and repairs Cityowned and leased facilities; provides for and controls the fueling of fleet vehicles.

Budget: $10-25+ million FTEs: 50+
Inherent Risks: Maintaining adequate internal
controls over vehicle and maintenance assets;
ensuring compliance with related contracts and
3 The Administration Budget includes City Services for StanRTA and 10th Street JPA Services. #3..
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franchise agreements, and ensuring an effective
preventive maintenance program.

Streets Responsible for keeping all City streets and
sidewalks in good repair and serviceable condition.

Budget: $5-10 million FTEs: 20-50
Inherent Risks: Efficiency of professional
services provided to all programs
Airport Provides both scheduled and nonscheduled air
service as well as private charter service. The City
owns approximately 164 based aircrafts and own
140 hangars that are leased to tenants for
recreational flying, private business use and
aviation related business.

Budget: $1-5 million FTEs: 0-5
Inherent Risks: Overall airport sustainability;
operator compliance; revenue-generating
contracts and leases; high levels of public
interaction; high-risk assets; health and safety
risks; and regulatory risks.

Solid Waste Manages two service agreements for residential, commercial, and industrial garbage and recycling
services. Services provided also include continuous
public education, community events, and outreach
programs, bulky-item pick up, enforcement and
clean-up of illegal dumping in streets and alleys,
litter removal throughout the City, daily customer
service, and implementing and enforcing various
state recycling guidelines and regulations. Solid
Waste division also oversees the City’s Compost
Facility which receives approximately 57,000 tons of
organic waste annually.

Budget: $1-5 million FTEs: 10-20
Inherent Risks: High level of public interaction
through public community outreach events,
customer service help desks, and route reviews.

High level of health and safety risk; ensuring
quality customer service and establishing rates
sufficient to sustain quality service; ensuring
compliance with revenue-generating waste
hauler agreements to optimize revenue; and
staff shortages and training.

Traffic Electrical Provides street light maintenance for street lights located in the city limits of Modesto and maintains
the traffic signals for the City of Modesto, as well as Stanislaus County and the City of Riverbank.

Additionally, this division also maintains the
electrical systems in all City of Modesto owned
buildings.

Budget: $1-5 million FTEs: 10-20
Inherent Risks: Sustainability of funding and
resources to maintain transportation and
environmental services; high-level of public
interest, health and safety, asset control and
inventory risks; ensuring cost-effective
maintenance and operations; and meeting the
changing environmental regulations and
unfunded mandates
Traffic
Engineering
Designs traffic signals and provides traffic signal
timing and coordination. Staff also investigates and
responds to citizen inquiries regarding traffic-related issues and maintains a citywide accident database.

Traffic Engineering staff design and construct traffic
improvement projects, analyze traffic impacts of
proposed projects and recommend solutions.

Budget: $0-1 million FTEs: 0-5
Inherent Risks: Cost-effective contract,
construction, and project management;
managing contractors and controlling project
costs; health and safety risks and high level of
public interest and visibility.

Traffic
Operations
Maintains more than 27,000 traffic signs and
pavement legends, as well as makes all pavement
striping for center lines, lane lines, bike lanes, etc.

Budget: $0-1 million FTEs: 0-5
Inherent Risks: Efficiency of services provided,
contract management and compliance, and
worker health and safety.

Green
Waste/Street
Sweeping
Work together to remove large green waste, street
debris, and fallen leaves from streets, alleys, and
storm drains throughout the City.

Budget: $5-10 million FTEs: 0-5
Inherent Risks: Efficiency of services provided,
worker health and safety, regulatory oversight
Building and
Parking Services
Responsible for preventative maintenance, general
repairs, troubleshooting, and coordination of vendor
repairs for most City facilities. Responsible for
managing contracts and invoice payments for a
Budget: $1-5 million FTEs: 10-20
Inherent Risks: Effective management of
contracts; high levels of public interaction; aging
infrastructure with relatively few staff to manage
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variety of building-related services, including
custodial service, pest control, elevator
maintenance, fire suppression systems, etc.
and maintain building and parking assets; $132
million in deferred maintenance for City
buildings; and contract management and
compliance.

Forestry Takes care of the City’s extensive urban forest. This includes the City’s street and park trees, as well as
the trees outside government buildings.

Budget: $1-5 million FTEs: 50+
Inherent Risks: Ensuring quality and efficiency
of services; health and safety risks to the public
and employees; some safety risks; contract
management and compliance.

Public Works manages a relatively high budget and FTE position allocation as compared to other City departments, controls a high level of at-risk assets, and relies heavily on external service providers, and is dependent on significant special revenue funding. The infrastructure for which Public Works is responsible to develop and maintain is highly visible to the community and requires substantial resources to maintain.

Further, its work is prone to increased health and safety risks, particularly as compared to other municipal services. Over the past year in particular, Public Works has experienced a difficult time recruiting and retaining qualified department personnel in a highly-competitive market, creating challenges as Public Works carries out essential functions.

The risks identified above may be exacerbated by reported personnel shortages and staff turnover that preexisted and was accelerated during the current tightening of the labor market. All of this suggests a higherthan-typical risk associated with staffing and organizational change. Because of this, the City will initiate a feasibility study in 2023 to identify staffing going forward. With these key risk areas in mind, we illustrate below the risk rankings of each division or program area in relation to one another.

EXHIBIT 47. PROGRAM RISK RATINGS
Nearly every program in Public Works can be considered moderate- to high-risk, primarily because of the amount of public resources allocated to the development and preservation of public infrastructure. With the Building &
Parking
Services
Public Works
Administration
Traffic
Engineering &
Operations
Fleet
Solid Waste
Streets Forestry
Airport
Green
Waste/Street
Sweeping

1.0 2.0

3.0 4.0

5.0 1.0 2.0 3.0 4.0 5.0
Likelihood
Impact
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exception of the its Administration Division, the importance of and the resources managed by each division would warrant a performance audit at some point. At the same time, however, many of the operations within Public Works remain in flux. Many operations have been the subject of recent studies and evaluations (e.g., citywide engineering services, parking, and fleet management), and others may be significantly impacted by increased funding resulting from the recent passage of Measure H. The City’s impending implementation of recommendations stemming from these recent studies and the operational impacts of increased funding suggest that it would be prudent to hold off on conducting performance audits of those programs expected to be most impacted—at least for the next year or two. Nevertheless, for this purpose of this Risk Assessment, the following potential performance audits rank as the most important:
(1) Assess the management of the City’s Capital Improvement Program (CIP) and engineering services, as well as the Department’s approach to capital project management—either on a citywide basis or specific to Public Works. This could include an evaluation of the City’s CIP development, planning, and monitoring activities to determine whether opportunities exist to improve the City’s ability to optimize utilization of restricted funds through capital planning. (2) Evaluate the City’s Facilities Maintenance Program, including:
a. Assessing Public Works’ overall approach to project management for construction projects, including its project delivery manual and guidelines, and determine the extent to which it is consistent with best practices.
b. Evaluating the Public Works’ ongoing control, monitoring, assessment, and maintenance of City facilities and properties to identify opportunities to enhance efficiencies and protect City assets.
c. Examine efforts to determine ongoing and future facility needs given the potential longterm impacts of the pandemic on remote work. (3) Evaluate the City’s fleet management program, including determining the extent to which fleet management is performed in a manner consistent with best practices, controls over sensitive assets are effective to prevent misuse, routine and preventive maintenance is performed in accordance to acceptable guidelines, the potential for abuse of City vehicles/fuel/equipment is appropriately mitigated, and practices are both efficient and effective. (4) Evaluate the Solid Waste Division to determine the cost effectiveness of the Department’s current service delivery model and operator contracts, as well as operator compliance with City contracts and mandates.
(5) Evaluate the Public Work’s Forestry Division to evaluate the operational efficiency of its business practices, the sufficiency of resources required to manage the City’s urban forest, its oversight of third-party service providers, and its success in achieving programmatic goals and outcomes. (6) Assess the Department’s operations and maintenance functions—including those in Traffic Electrical, Traffic Operations, Streets, and Building & Parking—and determine the extent to which (a) public infrastructure assets are adequately maintained and deferred maintenance is sufficiently tracked, (b) the Department’s asset management system reflects up-to-date condition assessments and effectively tracks and manages preventive maintenance cycles, (c) the Department’s job order tracking system enables incorporates effective cost controls, and (d) the #3..
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Department’s operations and maintenance activities are otherwise efficient and consistent with best practices.
(7) Assess the City’s airport operations, including the following key objectives (1) Determining the extent to which the Airport ensures ongoing self-sustainability; (2) Evaluating the effectiveness and efficiency of internal controls associated with overseeing and administering a wide range of third-party contracts and agreements; (3) Ensuring compliance with federal regulations relating to the use of aviation and nonaviation designated properties; (4) Ensuring efficiency in operations, maintenance and planning, public safety, and other airport operations.
(5) Evaluating the extent to which capital improvement planning and construction project management adhere to best practices.
(8) Evaluate grant management and administration activities to ensure compliance and optimal program outcomes.
(9) Assess revenue-generating activities, including the Public Works’ administration of franchise agreements, parking services, solid waste services, cost recovery fees, and other revenuegenerating activities.

Utilities
The mission of the Modesto Utilities
Department (Utilities Department) is to build
partnerships that promote a vibrant business
community and engage neighborhoods with a
culture of excellence. With an approximate
budget of $103 million—representing 26.3
percent of the City’s overall budget—and 269
FTE positions, the Utilities Department
operates and maintains all City water,
wastewater, and storm water systems; and
oversees capital improvement projects, water
resource planning, groundwater, surface water,
and recycled water initiatives, utility rates, and
regional water partnerships. Its funding is
primarily derived from the City’s Utility fund,
which generates revenue through utility service fees and taxes.

The Utilities Department is organized into four divisions: Wastewater Services, Water Services, Engineering Services, and Administration. The first two divisions manage the City’s water and wastewater utilities. Specifically, the Water Services Division manages the City’s water supply. It owns approximately #3..
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100 wells and purchases additional water from the Modesto Irrigation District, and delivers water to the City’s residential and business community. Likewise, Wastewater Services Division manages the City’s sewage and storm drainage systems and treatment plants. Water and wastewater customers are billed by the City’s Finance Department based on connection and metered data collected and managed by both divisions. Both divisions also maintain their own systems using both in-house and contract personnel, and track all maintenance activity through a maintenance management system. The Engineering Services and Administration divisions support the City’s utilities, with the former providing engineering design, master planning, and construction management services, and the latter providing budgetary, financial, rate-setting and other administrative support to the Department. Exhibit 48 provides a summary of the Utilities Department’s fiscal year 2022-23 budgeted expenses for each division.

EXHIBIT 48. BUDGET BREAKDOWN BY DIVISION
Source: City Budget Book Fiscal Year 2022-23
Exhibit 49 provides an overview of the organizational structure within the Utilities Department and corresponding areas of responsibility.
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EXHIBIT 49: UTILITIES DEPARTMENT ORGANIZATIONAL STRUCTURE Source: Official City Organization Charts and New Council Introduction Presentations Risk Analysis
Nearly every program in the Utilities Department can be considered moderate- to high-risk, primarily because of the public resources allocated to the development and preservation of the City’s water-related infrastructure. With the exception of the its Administration division, the importance of and the resources managed by each division would warrant a performance audit at some point. The following table provides an evaluation of key divisions or programs within the Utilities Department, along with a description of responsibilities, budget, FTEs, and inherent risks.

EXHIBIT 50. DIVISION AND PROGRAM DESCRIPTIONS

DIVISION /

PROGRAM

RESPONSIBILITIES FACTORS CONTRIBUTING TO RISK RATING
Waste Water
Services
The City of Modesto has two wastewater treatment
facilities in one of the largest beneficial reuse facilities in the United States. The City works to meet the stringent effluent limits required by the State of California in order for the water to be safely reused for irrigation. The City operates and maintains sewer mains and pump stations
that convey wastewater from homes and businesses to
the treatment plant.

Budget: $25+ million FTEs: 50+
Inherent Risks: Maintaining the system in
a cost-effective manner; maintaining
adequate funding; managing consultants
and contractors and controlling operating
costs; aging infrastructure; significant
deferred maintenance and workorder
backlogs; and increasing staff shortages
and high staff turnover.
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Water Services With over 75,000 water service connections, Modesto’s Water Services Division operates and maintains
approximately 1,000 miles of potable water pipelines and regularly tests 77 water wells and 12 water tanks to
ensure customers have access to clean water. Water
Services provides residents with safe, clean, and reliable drinking water. They work to maintain the water
distribution system and test the water supply, in addition to managing water meters and the Water Conservation
and Backflow-Cross Connection programs. Water
services operates the help desk and interacts with the
pubic frequently whether it is for non-payment on bills, emergency shut offs, customer requested service, or
other utility-related issue.

Budget: $25+ million FTEs: 50+
Inherent Risks: Ensuring quality and safe
drinking water according to state
mandates; maintaining the system in a
cost-effective manner; maintaining
adequate funding; managing consultants
and contractors and controlling operating
costs; aging infrastructure; significant
deferred maintenance and workorder
backlogs; and increasing staff shortages
and high staff turnover.

Engineering The Engineering Services teams oversee water, wastewater, and storm drainage studies and projects;
major citywide capital improvement construction projects; and more to ensure the department and services are
running smoothly. The Engineering division works with
various departments throughout the city such as Parks,
Recreation and Neighborhoods, Community and
Economic Development, and Public Works.

Budget: $1-5 million FTEs: 20-50
Inherent Risks: Cost-effective contract,
construction, and project management;
managing consultants and contractors and
controlling project costs; health and safety
risks and high level of public interest and
visibility; significant staff turnover and
staffing shortages.

Administration Oversees the general management of the Utilities Department, and is responsible for personnel, oversees
the department budget, and maintains utility rates and
fees.

Budget: $1-5 million FTEs: 50+
Inherent Risks: Efficiency of services
provided to all divisions, including
budgeting, financial, and administrative
support.

The Utilities Department is the second largest department in the City, behind only the Police Department.

Nearly every program in the Utilities Department can be considered moderate- to high-risk, primarily because of the amount of public resources allocated to the development and preservation of public waterrelated infrastructure. It has a significant level of budget and FTE resources when compared to other City departments, controls a high level of at-risk assets, manages a large number of contracts, relies heavily on external service providers, and relies on a significant special revenue funding. The public infrastructure for which the Utilities Department is responsible for developing and maintaining is highly regulated and highly visible to the public. It requires substantial resources to maintain, and the work of the Utilities Department is prone to increased health and safety risks, particularly as compared to other municipal services. There is also a high level of deferred maintenance for existing pipelines, facilities, and fleet equipment, which may lead to increased costs and/or service delivery challenges in the years to come. Further, the Utilities Department utilizes Lucity, a computerized maintenance management software. This software is utilized throughout various departments and divisions such as Public Works and Engineering divisions throughout the city. The roll-out of Lucity is in progress throughout the departments and therefore remains a high-risk audit area.

The risks identified above may be exacerbated by reported personnel shortages—primarily among engineers—and staff turnover that pre-existed and was accelerated during the current tightening of the labor market. Over the past year in particular, the Utilities Department has experienced a difficult time recruiting and retaining qualified department personnel in a highly-competitive market, creating challenges #3..
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as it carries out essential functions. All of this suggests a higher-than-typical risk associated with staffing and organizational change. With these key risk factors in mind, we illustrate below the risk rankings of each division or program area in relation to one another.

EXHIBIT 51. PROGRAM RISK RATINGS
However, for this purpose of this Risk Assessment, the following potential performance audits rank as the most important:
(1) Assess the management of the City’s Capital Improvement Program (CIP) and approach to project management, either on a citywide basis or specific to the Utilities Department. This could include:
a. The City’s CIP development, planning, and monitoring activities to determine whether opportunities exist to improve the City’s planning process and its ability to optimize utilization of restricted funds through capital planning. b. Project management practices to determine consistency with best practices and project delivery guidelines, and the adequacy of project and cost controls. (2) Assess revenue-generating activities, including rate-setting and data collection efforts used for the purposes of Utility Billing.
(3) Assess the current work order system (Lucity) and its effectiveness on operational activities as well as its compatibility with simultanously managing work order requests with other departments.

While we find that the first audit topic—an assessment of the City’s CIP and approach to project management—remains the highest priority audit in this list, we recommend the City hold off on initiating this audit until City management determines the next steps it will take in response to an internally-initiated study of citywide engineering functions. The outcome of this study and the implementation of its recommendations should be considered as part of a broader audit of the City’s CIP and approach to project management.

Water
Services
Engineering
Services
Wastewater
Services
Administration

1.0 2.0

3.0 4.0

5.0 1.0 2.0 3.0 4.0 5.0
Likelihood
Impact
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Risk Assessment Results
A Risk Assessment for internal audit planning is intended to identify ways to optimize the value of limited audit resources. This includes identifying “high-risk” programs or operations—e.g., those involving the most resources, impacting the most residents, experiencing the greatest challenges, etc.—but it is not limited to identifying “high-risk” programs or operations. In addition to identifying City programs that are considered to be high- or moderate-risk for inclusion in the audit plan, consideration must also be given to ensuring broad coverage over a defined period of time. Below, we provide recommendations for the City’s consideration in the development of its audit plan.

In considering the departmental profiles described previously, we shift to a broader view of our assessment of risk throughout the City. In Exhibit 56, we provide a citywide heat map, differentiating our assessment of risk among each of the City’s key programs and operations. In the lower left corner, we have several divisions that present relatively low risk, including certain departmental administrative operations, the City Clerk’s Office, City Attorney’s Office, and the City Manager’s Office. In the upper right corner, where the yellow meets the red, we find several divisions or programs for which, in general, we find reason to prioritize a management audit. These include those programs or operations involving the most resources and impacting the most residents, such as the Police, Fire, Utilities, Public Works, and Community & Economic Development departments. The City’s internal service programs tend to fall within the moderaterisk category.

EXHIBIT 56. CITYWIDE PROGRAM RISK RATINGS
Building &
Parking
Services
Fleets
Solid Waste
Forestry Streets
Airport
Green
Waste/Street
Sweeping
Employee
Benefits
Risk
Management
Engineering
Services
Water/Wastewater
Services
Accounting
Revenue
Collection &
Compliance
IT Security
Enterprise
Applications
Building Safety
& Neighborhood
Preservation
Economic
Development
Planning
Community
Development
Parks Administration
and Facilities
Recreation and
Neighborhoods
Parks Planning and Development
Park
Operations &
Maintenence
Fire
Support/Business
Operations
Fire
Operations/Suppression Fire Contract
Agencies
Community Risk
Reduction
Police Operations/
Investigavtive Services Police Support
Services
City Clerk's
Office
Department
Administration
Budget
Office
City Manger's
Office
City Attorney
1 2
3 4
5 1.0 2.0 3.0 4.0 5.0
Likelihood
Impact
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It is important to recognize, however, that effective audit plans do not solely focus on program areas that fall into the high-risk category. If this were the case, the same programs would be audited year after year.

Rather, an effective audit plan ensures adequate coverage throughout the City’s departments and programs. To achieve this, we recommend establishing an auditing cycle that ensures that the performance, programs, and/or activities of every department are audited, at least in part, on a periodic basis—such as on a three- or five-year cycle.

While the budget for the Office of the City Auditor will determine the number and scope of audits that can be completed in a given year, we present the following 14 audit engagements for inclusion in the initial Five-Year Audit Plan. This list of audit engagements addresses every department within the City, and provides a balance between internal service departments and those departments that serve and interact most with the residents and business community of Modesto. Specifically:
1) City Attorney: Evaluate the business processes and information systems to identify potential inefficiencies or opportunities for improvement in the Office’s administrative functions. 2) City Clerk: Evaluate the Office’s business processes, information systems, and workload management practices to identify potential inefficiencies or opportunities for improvement in the Office’s operational activity and administrative functions. 3) City Manager: Evaluate the City Manager’s Performance Measurement System, the purpose of which would be to identify ways to build upon an already strong performance measurement system that is both meaningful to City officials and the public. 4) Community & Economic Development: Performance audit of the Department’s recent technological and process improvements (i.e., eTRAKiT) to determine: (a) the extent to which the initiative’s goals were met, efficiencies were gained, and service delivery was improved; (b) whether continued opportunities for improvement exist; and (c) whether system controls are sufficient and effective to prevent or detect fraud, waste, and abuse. 5) Community & Economic Development: Performance audit of Community Development’s grant funded programs, including an assessment of grant compliance, internal controls associated with grant programs, subrecipient compliance with City requirements, outreach efforts, efforts to expand the agency’s grant footprint, and the overall effectiveness in achieving program goals. 6) Finance: Evaluate procurement and contracting practices with a focus on ensuring consistency with Finance and Council policies, proper segregation of duties with accounts payable functions, consistency with best practices, the overall efficiency of the City’s purchasing and contracting processes, and whether control deficiencies identified in the past have been corrected and resolved.
7) Finance: Evaluate cashiering processes, including those performed through differing information and cashiering systems, the impact that staff turnover has had on cashiering operations, and the role of Finance in ensuring adequate internal and system controls associated with each. 8) Fire Department: The effectiveness and efficiency of internal controls associated with overseeing and administering the Department’s contract services, and the Department’s cost-recovery methods.
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9) Human Resources: Determine whether the City’s human resources management activities are consistent with industry standards; sufficient to ensure compliance with federal, state, and local laws and regulations; effective in attracting, retaining, and motivating a highly talented, qualified, and effective workforce; and appropriately resourced and right-sized for the City of Modesto. This should include key elements of human resources management, as outlined in the Human Resources department profile.
10) Information Technology: Performance audit of the Department’s protocols and practices related to cybersecurity to determine the extent to which practices are consistent with best practices, resources are adequate to sufficiently mitigate security risks, the City’s vulnerability to threat actors.
11) Parks, Recreation, and Neighborhoods: Evaluate the Department’s strategic planning to determine whether the Department is right-sized and well positioned to serve City residents moving forward, particularly as it relates to:
a. Capital asset planning and the impacts on future operating costs. b. Recreational programming, utilization, and responsiveness to community needs. c. Maintenance programming and the approaches taken by the Department to assess and maintain its asset infrastructure, as well as staffing levels to adequately maintain City assets.
12) Police Department: Performance audit of the Department’s Inventory management, including equipment, cash, weapons, evidence, and other sensitive assets to determine whether sufficient controls are in place to prevent and detect potential instances of theft, loss, fraud, or abuse. 13) Public Works: Evaluate the Department’s Forestry Division to evaluate the operational efficiency of its business practices, the sufficiency of resources required to manage the City’s urban forest, its oversight of third-party service providers, and its success in achieving programmatic goals and outcomes.
14) Utilities: Assess the management of the City’s Capital Improvement Program (CIP) and approach to project management, either on a citywide basis or specific to the Utilities Department. This could include:
c. The City’s CIP development, planning, and monitoring activities to determine whether opportunities exist to improve the City’s planning process and its ability to optimize utilization of restricted funds through capital planning. d. Project management practices to determine consistency with best practices and project delivery guidelines, and the adequacy of project and cost controls.

These audit topics are presented in the order in which they were presented in this risk assessment, and are proposed for inclusion in a five-year audit plan to be administered by the City Auditor. It is recognized, however, that prior to establishing each annual audit plan, the City Auditor will seek input from the City Council’s Performance Audit Committee, City Councilmembers, and City Management to identify potential changes to the five-year plan and before determining the specific audits to be included in the annual audit plan. This allows for continued input and routine updating to the audit plan to ensure it addresses current #3..
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and emerging challenges faced by the City. For the purpose of the initial 2023 audit plan, we recommend prioritizing three audit engagements:
1) Community & Economic Development: Performance audit of Community Development’s grant funded programs, including an assessment of grant compliance, internal controls associated with grant programs, subrecipient compliance with City requirements, outreach efforts, efforts to expand the agency’s grant footprint, and the overall effectiveness in achieving program goals. 2) Finance: Evaluate procurement and contracting practices with a focus on ensuring consistency with Finance and Council policies, proper segregation of duties with accounts payable functions, consistency with best practices, the overall efficiency of the City’s purchasing and contracting processes, and whether control deficiencies identified in the past have been corrected and resolved.
3) Information Technology: Performance audit of the Department’s protocols and practices related to cybersecurity to determine the extent to which practices are consistent with best practices, resources are adequate to sufficiently mitigate security risks, the City’s vulnerability to threat actors.

We recognize that the actual audit plan will be determined, in part, by the budgetary resources available for the City Auditor. Nevertheless, in our view, these three audit topics are both timely and are likely to result in added value to the City of Modesto.
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Exhibit “3”
The Increase Accountability in City Hall
Measure of 2008
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The Increase Accountability in City Hall Measure of 2008 REVISED SECTIONS 601, 703, 800, 801, 900, 903, 1201, 1303 AND 1304
NEW SECTION 725, 902.1, 1302.1 AND 1302.2
REVOKED SECTION 1302
SECTION 601. POWERS AND DUTIES OF MAYOR.

The Mayor shall have the following powers and duties:
(a) The Mayor shall be recognized as the official head of the City for all political, representative and ceremonial purposes and by the Governor for military purposes;
(b) The Mayor may review with the City Manager, City Attorney and City Clerk prior to each Council meeting the items on the Council’s agenda and to add matters thereto;
(c) The Mayor may make recommendations to the City Manager on matters of policy and programs;
(d) The Mayor may direct the Charter Officers to prepare and provide information to the Council on matters of policy and programs which require Council decision;
(e) The Mayor may request budgetary and any other information from the Charter Officers that the Mayor determines is necessary for the conduct of the Mayor’s duties;
(f) The Mayor, together with the Council, annually shall conduct a written performance evaluation of each Charter Officer which shall include, without limitation, an evaluation of the Charter Officer’s performance in implementing the Council’s Statement of Policy for that Charter Officer developed pursuant to Section 725 of this Charter. (g) The Mayor may appoint, with the advice and consent of the Council, a Chairman, a Vice-Chairman, one regular member and one alternate member to each standing, special and ad hoc committee of the Council; #3..
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(h) The Mayor may appoint, with the advice and consent of the Council, such advisory boards, commissions and ad hoc committees as may be necessary or desirable to advise and assist in the work of the Council; (i) The Mayor may appoint such other advisory boards and ad hoc committees as may be necessary or desirable to advise and assist in the work of the Mayor; provided, however, that the members of such advisory boards or ad hoc committees shall not receive any compensation; (j) The Mayor may recommend adjustments to the City budget and to propose the modification or curtailment of any city service. If the Mayor recommends any increases in the City budget, the Mayor shall recommend the method of financing such expenditures. If the Mayor proposes the modification or curtailment of any city service, the Mayor shall provide specific recommendations and the reasons for such proposal;
(k) The Mayor shall prepare and deliver the Mayor’s Proposed Budget Priorities and Direction and the Mayor’s Budget Message pursuant to Section 1302A of the Charter and the Mayor’s Final Budget Modifications pursuant to Section 1303 of the Charter;
(l) The Mayor may select and hire staff to the office of Mayor and the City Council as may be necessary or desirable to advise and assist in the work of the Mayor and City Council; provided, however, that the Mayor shall not appoint to any position any business associate or any person related to him or her or to the City Manager or to any member of the Council by blood or marriage within the second degree. If staff is provided to the Council under this section, such staff shall be provided on an equal basis to each member of the Council. All such appointees shall serve at the pleasure of the Mayor in the Unclassified Service; and shall serve under such terms and conditions, salaries and benefits as are similar to other employees in Modesto’s service. In the event an employee of the City who holds a Classified Service position is appointed to a position in the Unclassified Service under this Section, he or she may return to a position in the Classified Service. Such return to the Classified Service shall be without loss of any rights or privileges that currently pertain to the Classified Service;
(m) When a vacancy occurs, the Mayor shall nominate at least two (2) candidates for Council consideration for appointment to the position of City Manager. The Mayor may express to the Council a preference among final candidates;
(n) After consultation with the Council, the Mayor may comment in writing upon the independent, written performance evaluation conducted #3..
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annually by the City Manager of each head of a city department which is under the administration of the City Manager;
(o) The Mayor may attend and participate in executive meetings of the City Manager and heads of City departments which are under the administration of the City Manager;
(p) In time of public danger or emergency, the Mayor may, with the consent of the Council, or pending a meeting of the Council, direct the administration of the City Government through the City Manager; (q) The Mayor shall be charged with the duty of making
recommendations to the Council on all major matters of policy and program which require Council decision. The Mayor shall have the primary, but not exclusive, responsibility for interpreting the policies, programs and needs of the City government to the community; (r) The Mayor may also, on the Mayor’s own account, as may each individual Councilmember, inform the community on any matters of policy or program which the Mayor believes the welfare of the community makes necessary;
(s) It shall be the duty of the Mayor to represent the Council in its relationships with civic groups within the City, and by direction of the Council, the Mayor shall represent the City in its relationships with other governmental agencies on matters of policy and program. (t) The Mayor shall preside at meetings of the Council and shall have a vote as a member of the Council. The Mayor shall have no power to veto any ordinance or resolution adopted by the Council;
(u) The Mayor shall have authority to preserve order at all Council meetings and to remove or cause the removal of any person from any meeting of the Council for disorderly conduct, to enforce the rules of the Council, and to determine the order of business under the rules of the Council;
(v) The Mayor shall exercise such other powers and perform such other duties as may be consistent with the Mayor’s office or as may be granted to the Mayor by the Council not inconsistent with this Charter.

Nothing in this section shall be construed in any way as an infringement or limitation on the powers and duties of the City Manager as chief administrative officer and head of the administrative branch of the City government as prescribed in other sections of this Charter. #3..
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SECTION 703. COMPENSATION FOR ELECTED OFFICIALS.

(a) Compensation and Reimbursement. The Mayor and each member of the Council shall be paid as compensation for his or her services as a member of the Council for each calendar month during which he or she is a member of the Council a monthly salary together with appropriate benefits which shall be established by ordinance only after the Citizen’s Salary Setting Commission has made a written recommendation for compensation pursuant to the strict limits of the section, such written recommendation has been published for review pursuant to the requirements of this section, and the mandated public hearings required by this section have been held on the recommendation.

The Mayor and members of the Council shall also receive reimbursement for expenses incurred while performing official duties of their office only so long as evidence of such expenses incurred is presented to the City in the manner prescribed for all other employees of the City.

No compensation or reimbursement shall be established for any member of the Council, including the Mayor, except as provided in this Section.

(b) Citizen's Salary Setting Commission. There shall be established a Citizen's Salary Setting Commission, hereinafter “Commission,” whose function shall be to recommend the compensation it deems appropriate for the Mayor and members of the Council. This Commission shall meet between March 1st and April 30th of every even-numbered year.

The Citizen's Salary Setting Commission shall consist of five (5) qualified electors residing within the City and shall be appointed by the City Council pursuant to the provisions below:

(A) Strong consideration shall be given to composing
the Commission of:
(i) a retired Stanislaus County judge as
chairperson;
(ii) one (1) member from a bona fide local
taxpayer’s association with tax exempt
status under the relevant provisions of the
Internal Revenue Code;
(iii) one (1) member from a bona fide local
nonpartisan political organization, with
tax-exempt status under Section 501(c)(3)
of the Internal Revenue Code, dedicated to
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encouraging informed and active
participation in government;
(iv) one (1) member from, a former Civil Grand
Jury who has served in that role within in
the previous five (5) years;
(v) additional members who have
demonstrated civic involvement and a
capacity to serve in an honest,
independent, and impartial fashion.
(B) No member of the Commission shall be a relative by blood or marriage within the third degree of the Mayor, a member of the Council, any Charter officer, or any department head or deputy department head.
(C) No member of the Commission shall be an employee of the City nor any bargaining unit for employees of the City, nor be a person who receives compensation from the City or from bargaining units of the City in any manner, including retirement benefits.

(D) No member of the Commission shall be a lobbyist or
other person with business before the City that represents an economic interest in excess of the limit for material financial effect as established by local ordinance for the time periods established by local ordinance.
(E) In all other respects, the members of the Commission shall be chosen pursuant to the provisions of this Charter.

(F) Members of the Commission shall serve without
compensation.

Except as provided herein below, the regular term of office of each member of the Commission shall be four (4) years. The initial five (5) members of the Commssion shall be appointed during the month of March 2008. Two of the members so appointed shall be appointed for a term expiring on December 31, 2010. Three (3) of the members, including the initial chairperson, so appointed shall be appointed for a term expiring on December 31, 2012. Commencing in December 2010, new appointments shall be made during the month of December of each even-numbered year to fill the offices of the members whose terms are expiring at the end of such even-numbered years. Such appointments #3..
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shall be for regular terms of four (4) years commencing on the first day of January of the following odd-numbered year and expiring on the thirtyfirst day of December of the second even-numbered year thereafter.

No Commission member may serve for more than two (2) terms. A Commission member may be removed from office at any time for misconduct, inefficiency or willful neglect in the performance of the duties of his or her office providing the Council first states in writing the reasons for such removal and gives such member an opportunity to be heard before the Council in his or her own defense. No tax dollars shall be expended on behalf of a Commission member for such defense. If a vacancy occurs before the expiration of a member’s term, the Council shall appoint a qualified person to fill such vacancy for the remainder of the unexpired term of such member.

(c) Salary Limitations and Penalties. The salary of the Mayor shall not be more than fifty percent (50%) of the amount of the salary of a Judge of the Superior Court of Stanislaus County.

The salary of a Councilmember shall not be more than fifty percent (50%) of the median family income for the Modesto Metropolitan Statistical Area as reported by the United States Census Bureau. The salary of each Councilmember shall be the same.

Any appropriate benefits established under this provision may not include retirement or pension benefits of any sort.

No recommendation shall be made by the Commission except upon the affirmative vote of three (3) members of the Commission.

No recommendations may be made in odd-numbered years. The recommendation of the Commission will be made to the Council by April 30th of every even-numbered year to be effective for a two-year period commencing not before July 1 of that even numbered year. Failure of the Commission to make a recommendation in any even numbered year within the prescribed time shall be deemed to be a recommendation that no changes be made to existing compensation levels.

Any monthly salary shall be reduced by one-fourth for each regular meeting of the Council not attended by a councilmember each month, unless absent on official duty with the consent of the Council.

(d) Process to Set Compensation. Each recommendation by the Commission, together with the reasons for the recommendation, shall be made in writing by the Commission.

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Before any such recommendation is provided to the Council, a draft recommendation shall be made available to the public and the Commission shall hold at least two public hearings on the matter before it adopts its final recommendation.

When such final recommendation has been submitted to the Council, it shall not thereafter be amended by the Commission.

Upon receiving the final recommendation from the Commission, the Council may adopt the compensation as recommended by the Commission or may adopt compensation in some lower amount, but in no case may adopt compensation in some higher amount. The Council may only adopt all such compensation by ordinance and after a public hearing of which legal notice is published in a newspaper of general circulation within the City at least twenty (20) days prior to said hearing.

Salaries established by ordinance adopted pursuant to the provisions of this Section shall remain in effect until amended by a subsequent ordinance adopted pursuant to the provisions of this Section. The compensation being paid to Councilmembers as of the effective date of this Section shall continue until any subsequent compensation is established pursuant to the requirements of this Section.

(e) Subject to Referendum.

Any final decision by the Council on compensation under this Section shall be subject to the referendum provisions of the Charter.

SECTION 725. STATEMENT OF POLICY FOR CHARTER OFFICERS
AND CITY DEPARTMENTS; COUNCIL REVIEW OF ANNUAL
EVALUATIONS.

The Council shall adopt a written Statement of Policy for each Charter Officer and for each City department which is under the administration of the City Manager. Said Statement of Policy shall set forth the broad goals, objectives and aspirations to be accomplished by that department.

For Charter Officers, each Charter Officer shall provide to the Council a draft written Statement of Policy for his or her office for consideration, and, if deemed necessary by the Council, revision and amendment, prior to adoption by the Council. For each City department which is under the administration of the City Manager, the City Manager shall designate one or more persons in each such department to provide to the City Manager, for transmittal to the Council, a draft written Statement of Policy for each department for consideration, and, if deemed necessary by the Council, revision and amendment, prior to adoption by the Council. #3..
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Such Statements of Policy shall be reviewed and, if necessary, amended, in the first quarter of every even-numbered calendar year and when the position of a Charter Officer or the head of a City department which is under the administration of the City Manager becomes vacant.

When such review and amendment is conducted due to a vacancy in position, the Mayor and Councilmembers shall adopt a set of questions which are intended to elicit responses from each prospective appointee concerning the goals, objectives and aspirations in the Statement of Policy.

Prior to appointing any head of a City department, the City Manager shall submit to the Mayor and Councilmembers, for their review, the responses to the Mayor and Councilmembers' questions submitted by the finalists for appointment to the vacant position. This section shall not apply to the appointment of any "acting" department head to serve in an interim capacity.

The City Manager shall share and review with the Council the annual independent, written performance evaluations of each head of a city department which is under the administration of the City Manager.

SECTION 800. CITY MANAGER.

There shall be a City Manager who shall be the chief executive officer and head of the Administrative Branch of the City government. The City Manager shall be chosen on the basis of the person’s executive and administrative qualifications with special reference to the person’s actual experience in, or the person’s knowledge of accepted practices with respect to the duties of the office as hereinafter set forth. No member of the Council shall be eligible for appointment to the office of City Manager during the term for which the member shall have been elected or appointed, nor within one (1) year thereafter. The City Manager need not be a resident of the City or State at the time of appointment, but during the City Manager’s tenure of office, the City Manager shall reside within the City.

When a vacancy occurs, the Mayor shall nominate at least two (2) candidates for Council consideration for appointment to the #3..
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position of City Manager. The Mayor may express to the Council a preference among final candidates. The Council shall appoint the City Manager for an indefinite term and may remove the City Manager by a majority vote of its members; provided, however, that the City Manager shall not be removed from office during or within a period of ninety (90) days next succeeding the election of a member of the Council. The purpose of this provision is to allow any newly elected member of the Council to observe the actions and ability of the City Manager in the performance of powers and duties of this office.

SECTION 801. POWERS AND DUTIES.

The City Manager shall be the chief administrative officer and head of the administrative branch of the City government. The City Manager shall be responsible to the Council for the proper administration of all affairs of the City and to that end, subject to the personnel provisions of this Charter, the City Manager shall have power and shall be required to:
(a) Appoint and, when necessary for the good of the service, discipline and remove all officers and employees of the City except as otherwise provided by this Charter, and except as the City Manager may authorize the head of any department or office to appoint or remove subordinates in such
department or office. The City Manager may also authorize the head of any department, including deputy directors, police captains and fire battalion chiefs, or other city employees as designated by ordinance, to recommend and
impose discipline in accordance with this Charter.
(b) Prepare the draft budget annually and submit it to the Mayor and Council, prepare the proposed budget annually and submit it to the Mayor and Council and be responsible for its administration after its adoption by the Council, prepare all other necessary budget documents, and prepare and submit to the Mayor and Council the Capital and
Operating Mid-Year Budget Report.
(c) Prepare and submit to the Council within ninety (90) days of the end of the fiscal year, a complete report on the finances and administrative activities of the City for the preceding year.
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(d) Review procedures relating to the assessment, levy and collection of ad valorem property taxes and make
recommendations regarding the same to the Council if
deemed appropriate.
(e) Establish a centralized purchasing system for all City offices, departments and agencies.
(f) Establish and enforce specifications for supplies,
materials and equipment required by the City.
(g) Cause all supplies purchased by the City to be inspected and a determination made that the same comply with
specifications.
(h) Prepare rules and regulations governing the contracting for, purchasing, storing, inventory, distribution or disposal of all supplies, materials and equipment required by any office, department or agency of the City government and
recommend them to the Council for its adoption by
ordinance. Preference shall be given to the purchase of supplies, materials and equipment from local merchants, quality and price being equal.
(i) Enforce the laws of the State pertaining to the City, the provisions of this Charter and the ordinances, franchises and rights of the City.
(j) Keep the Council advised of the financial conditions and future needs of the City and make such recommendations on any matter as the City Manager may deem desirable.
(k) Make and execute contracts on behalf of the City
involving budgeted or appropriated expenditures which do not exceed the amount specified by ordinance of the City Council.
(l) Appoint advisory boards, without compensation, to assist the City Manager in the performance of the City Manager’s duty, if the City Manager deems it necessary.
(m) Interchange employees between or among departments
if the City Manager deems it proper so to do.
(n) Immediately upon taking office, and annually thereafter, inventory and place a value on all real estate, buildings, #3..
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furniture and fixtures, supplies and movable property of every kind and nature belonging to the City; and to require each officer or department head to inventory the same or any portion thereof. One (1) copy of such inventory shall be filed with the Council and one (1) with the auditor.
(o) Be responsible for the custody and control of all City property, the custody and control of which has not otherwise been provided for by this Charter.
(p) Perform such other duties as may be prescribed by this Charter or required of the City Manager by the Council not inconsistent with this Charter.
(q) Sign all contracts, deeds and other documents on behalf of the City when authorized to do so by the Council or by this Charter.
(r) The City Manager shall have the authority to transfer equipment and supplies between departments, and with the approval of the Council, sell obsolete, and unused or surplus personal property of the City.
(s) The City Manager shall be accorded a seat at the Council table and shall be entitled to participate in the deliberations of the Council, but shall not have a vote.
(t) The Council shall have the right to instruct the City Manager in matters of policy and the City Manager shall be responsible for implementing such Council policy. Any
action, determination or omission of the City Manager shall be subject to review by the Council, but no such action, determination or omission shall be overruled or modified by a vote of less than four-sevenths of the members of such Council.
(u) The City Manager, pursuant to Section 725 of the
Charter, shall direct creation of draft written statements of Policy for each City department which is under the
administration of the City Manager.
(v) The City Manager annually shall conduct an
independent, written performance evaluation of each head of a city department which is under the administration of the City Manager. Such performance evaluation shall include, without limitation, an evaluation of the department head’s #3..
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performance in implementing the Council’s Statement of
Policy for that department. The City Manager shall provide such performance evaluations to the Council for their review pursuant to Section 725 of the Charter. After such Council review, the Mayor may comment on the performance
evaluation pursuant to Section 601(m) of the Charter.

SECTION 900. OFFICERS AND EMPLOYEES. GENERAL.

The officers of the City of Modesto shall consist of a Mayor, the Council, a City Manager, a City Attorney, a City Clerk, a City Auditor and such other or subordinate officers, assistants, deputies and employees as the Council may deem necessary to provide by ordinance or resolution.

The City Attorney, the City Clerk and the City Auditor shall be appointed by and may be removed by the affirmative votes of four (4) members of the Council; provided, however, that neither the City Attorney, the City Clerk nor the City Auditor shall be removed from office during or within a period of ninety (90) days next succeeding the election of a member of the Council. The purpose of this provision is to allow any newly elected member of the Council to observe the actions and abilities of these officers in the performance of the powers and duties of the respective offices.

The City Manager shall be appointed and removed as provided by Section 800 of this Charter. Except as otherwise provided in this section, all other officers and department heads of the City shall be appointed by the City Manager and shall serve at the pleasure of the City Manager.

The City Auditor shall have such powers and be required to perform such duties, consistent with the provisions of this Charter, as may be required by the Council.

The City Manager, the City Attorney, the City Clerk, and the City Auditor may be referred to collectively in this Charter as “Charter Officers.” SECTION 902.1. OFFICE OF THE CITY AUDITOR
The Office of the City Auditor is hereby established. The City Council shall appoint the City Auditor who shall serve at its pleasure. The City Auditor shall be certified according to standards comparable to a Certified Public Accountant or a Certified Internal Auditor at time of appointment.
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The City Auditor shall have the following powers and duties:
(a) Conduct or cause to be conducted annual post audits of all the fiscal transactions and accounts kept by or for the City. Such audits shall include but not be limited to the examination and analysis of fiscal procedures and the examination, checking and verification of accounts and expenditures. The audits shall be conducted in accordance with generally accepted auditing standards and accordingly shall include tests of the accounting records and other auditing procedures as may be considered necessary under the circumstances. The audits shall include the issuance of suitable reports of examination so the Council and the public will be informed as to the adequacy of the financial statements of the City.
(b) Conduct performance audits, as assigned by Council. A "performance audit" means a post audit which determines with regard to the purpose, functions and duties of the audited agency all of the following:
(1) Whether the audited department, office or agency, is managing or utilizing its resources, including public funds, personnel, property, equipment and space in an economical and efficient manner. (2) Causes of inefficiencies or uneconomical practices, including inadequacies in management information systems, internal and administrative procedures, organizational structure, use of resources, allocation of personnel, purchasing policies and equipment. (3) Whether the desired results are being achieved.
(4) Whether objectives established by the Council or other authorizing body are being met.
(c) Conduct special audits and investigations, as assigned by Council. "Special audits and investigations" mean assignments of limited scope, intended to determine:
(1) The accuracy of information provided to the Council. (2) The costs and consequences of recommendations made to the Council.
(3) Other information concerning the performance of City Departments, Offices or Agencies as requested by the Council. #3..
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(d) The City Auditor shall have access to, and authority to examine any and all documents including but not limited to books, accounts, internal memoranda, writings and tapes, reports, vouchers, correspondence files and other records, bank accounts, money and other property of any City department, office or agency, whether created by the Charter or otherwise, with the exception of the office of any elected official.

It is the duty of any officer, employee or agent of the City having control of such records to permit access to, and examination thereof, upon the request of the City Auditor or his or her authorized representative. It is also the duty of any such officer, employee or agent to fully cooperate with, and to make full disclosure of all pertinent information. (e) Prepare and submit to the Council quarterly reports of the City Auditor’s activities and findings in the immediately preceding three calendar months, together with any recommendations to improve the administration of the City.
(f) Perform other auditing functions, consistent with other provisions of this Charter, and prepare and submit such other reports, as may be assigned by the Council.

The City Auditor may appoint and prescribe the duties of the professional, technical and clerical employees employed in the Office of the City Auditor; provided, however, that the City Auditor shall not appoint to any position any business associate or any person related to him or her or to the City Manager or to any member of the Council by blood or marriage within the second degree. All such appointees shall serve at the pleasure of the City Auditor in the Unclassified Service; and shall serve under such terms and conditions, salaries and benefits as are similar to other employees in Modesto’s service. In the event an employee of the City who holds a Classified Service position is appointed to a position in the Unclassified Service under this Section, he or she may return to a position in the Classified Service. Such return to the Classified Service shall be without loss of any rights or privileges that currently pertain to the Classified Serivce.

Neither the Council nor any of its members shall in any manner dictate the appointment or removal of any such officer or employee whom the City Auditor is empowered to appoint, but the Council may express its views and fully and freely discuss with the City Auditor anything pertaining to the appointment and removal of such officers and employees.
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SECTION 903. DUTIES OF OFFICERS AND EMPLOYEES.

After obtaining and considering the recommendations of the City Manager, the Council shall provide by ordinance or resolution, not inconsistent with this Charter, for the powers and duties of all officers and employees of the City.

Where the positions are not incompatible, the Council may combine in one (1) person the powers and duties of two (2) or more offices created or provided for in the Charter. Notwithstanding this provision, the offices of the City Manager, City Clerk, City Attorney and City Auditor shall not be combined except in cases of emergency, and in no event shall such combination exceed a period of three months.

No office provided herein to be filled by appointment by the City Manager may be combined with an office provided herein to be filled by appointment by the Council.

Notwithstanding the foregoing, the Council may transfer or consolidate functions of the City government to or with appropriate functions of the State or County government or may make use of such functions of the State or County government, and in case of any such transfer or consolidation, the provisions of this Charter providing for the function of the City government so transferred or consolidated shall be deemed suspended during the continuance of such transfer or consolidation, to the extent that such suspension is made necessary or convenient and is set forth in the ordinance or resolution establishing such transfer or consolidation. Any such transfer or consolidation may be repealed in like manner.

SECTION 1201. UNCLASSIFIED AND CLASSIFIED SERVICE.

The administrative service of the City shall be divided into Unclassified and Classified Service.
(a) The Unclassified Service shall comprise the following officers and positions:
(1) All elected officers.
(2) City Manager, any Deputy City Manager, City Attorney, any Assistant City Attorney, any Deputy City Attorneys, City Clerk, City Auditor, and all heads of departments and deputy directors.

(3) All members of boards and commissions.
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(4) Persons employed as unskilled laborers.
(5) Persons employed to render professional, scientific, technical or expert services of any occasional or exceptional character. (6) Temporary and part-time employees paid on an hourly or per diem basis.
(7) Persons employed under Section 601(l) of this Charter. (b) The Classified Service shall comprise all positions not specifically included by this section in the Unclassified Service.

SECTION 1302.1. SUBMISSION OF ECONOMIC FORECASTS;
MAYOR’S BUDGET MESSAGE.

The City Manager shall, on or before December 15 of each year, submit to the Mayor and to the Council a five (5) year economic forecast of expenditures and revenues for each City department, office or agency.

The Mayor shall, on or before January 15 of each year, prepare and deliver to the Council the Mayor’s Proposed Budget Priorities and Direction for both the City’s Capital Budget and for the City’s Operating Budget.

The City Manager shall, on or before February 1 of each year, prepare and deliver to the Mayor and to the Council a Capital and Operating MidYear Budget Report for each City department, office or agency.

The Mayor shall, on or before February 15 of each year prepare and deliver to the Council the Mayor’s Budget Message which shall include:
(a) A statement of the fiscal priorities which the City should adopt for the ensuing fiscal year; and
(b) Which City services, departments, offices or agencies the Mayor proposes to be expanded or reduced.

The Council shall hold a public hearing to consider the Final Mayor’s Budget Message and to make any additions or revisions the Council deems advisable.
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Upon close of the public hearing, the Council shall approve the Mayor’s Budget Message as presented, or as revised.

SECTION 1302.2. ANNUAL BUDGET.

By April 30 of each year, the City Manager shall send to the Council a draft budget consisting of a careful estimate, in writing, of the amounts of expenditures required for the business and proper conduct of the various departments, offices, boards and commissions of the City, over which the City Manager has control during the next ensuing year. Said estimate shall be in such detail as the Council shall specify. The City Manager shall also include in the draft budget at said time and submit to the Council an estimate of the amount of income from fines, licenses and other sources of revenue, exclusive of taxes upon property, and the probable amount required to be levied and raised by taxation.

In addition to complying with the requirements of this section, The draft budget shall accurately reflect the recommendations and priorities specified in the Final Mayor’s Budget Message as adopted by the Council.

The report of the City Manager accompanying the draft budget shall specify the budget allocations which implement each component included within the Final Mayor’s Budget Message as adopted by the Council.

SECTION 1303. MAYOR’S FINAL BUDGET MODIFICATIONS; PUBLIC HEARING ON THE PROPOSED BUDGET.

At least thirty (30) days prior to the new fiscal year, the Mayor shall prepare and deliver to the Council the Mayor’s Final Budget Modifications on the draft budget.

Following the receipt of the Mayor’s Final Budget Modifications, the Council shall consider and review the draft budget as submitted by the City Manager together with the Mayor’s Final Budget Modifications and may make such revisions as the Council may deem advisable. The document resulting from this process shall be deemed the “Proposed Budget.”
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Thereafter, the Council shall determine the time for holding of a public hearing upon the “Proposed Budget”, and shall cause a notice thereof to be published not less than ten (10) days prior to said hearing by at least one (1) insertion in a newspaper of general circulation within the City.

Copies of the Proposed Budget to be considered at the public hearing shall be available for inspection by the public at the office of the City Clerk at least ten (10) days prior to said hearing.

At the time so advertised or at any time such public hearing from time to time be adjourned, the Council shall hold a public hearing on the proposed budget at which interested persons desiring to be heard shall be given such opportunity.

SECTION 1304. ADOPTION OF THE BUDGET.

After the conclusion of the public hearing, the Council shall further consider the proposed budget and make any revisions thereof that it may deem advisable; and thereafter it shall adopt the budget with revisions, if any. Such revisions may add or increase programs or amounts or may delete or decrease programs or amounts except expenditures required by law or for debt service, provided that no revision to the budget shall increase proposed expenditures to an amount greater than the total estimated income plus unencumbered available reserves and estimated
unencumbered balances of funds carried over from the preceding fiscal year.

Upon final adoption, the budget shall be in effect for the ensuing fiscal year.

From the effective date of the budget, the several amounts stated therein as proposed expenditures shall be and become
appropriated to the various departments or activities therein described. All appropriations shall lapse at the end of the fiscal year to the extent that they shall not have been expended or lawfully encumbered unless they shall have been designated in the budget as continuing appropriations. At any meeting after the adoption of the budget, the Council may amend or supplement the budget by resolution.
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Audit CommitteeJanuary 23, 2023

Audit Committee
January 23, 2023