Monte Sereno City Council
June 30, 2026

AGENDA
City of Monte Sereno
Tuesday, June 30, 2026
Special Meeting of the City Council
6:00 PM
Monte Sereno City Council Chambers - 18041 Saratoga -
Los Gatos Road, Monte Sereno, Ca 95030
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Page

CALL TO ORDER
The Mayor, or a majority of the Council by vote, may change the order of business, except for public hearings on the agenda for a set time.

ROLL CALL

NEW BUSINESS

1. Consider and Accept the Fiscal Year 2024-2025 Financial Audit Report Staff recommends that the City Council consider and accept the Fiscal Year 2024-2025 (FY 2025) Financial Audit Report.

Staff Report - SR-26-109 - Pdf
3 - 98

ADJOURN
* All items on the agenda are subject to action/or change by the City Council In compliance with the Americans with Disabilities Act, if you need special assistance to participate in this meeting, please contact the City Clerk (408) 354-7635. If requested of the City Clerk, agendas and documents in the agenda packet can be made available in appropriate alternative formats to persons with a disability.

Notification 48 hours prior to the meeting will enable the City to make reasonable arrangements to ensure accessibility to this meeting. [28CFR 35.102-35.104 ADA Title II]

STAFF REPORT
Meeting: Special Meeting of the City Council - Jun 30 2026 Agenda Heading: NEW BUSINESS
Staff Contact: Diana Perkins, City Manager
Department: City Manager
Title: Consider and Accept the Fiscal Year 2024-2025 Financial Audit Report Recommendation(s):

Staff recommends that the City Council consider and accept the Fiscal Year 2024-2025 (FY 2025) Financial Audit Report.

Background Information:

The financial audit and statements for the fiscal year ended June 30, 2025, has been prepared by Maze & Associates, the City’s independent auditing firm, in collaboration with the City Council’s former Ad Hoc Committee for Improving Financial Control and Reporting, City staff and consultants. The FY 2025 audit received an unmodified opinion from Maze & Associates, indicating that the auditors believe the report fairly presents, in all material respects, the City’s financial position as of June30, 2025, and that the financial statements comply with generally accepted accounting principles.

California Environmental Quality Act:

This is not a “project” under the California Environmental Quality Act (“CEQA”) in that it is a governmental organizational or administrative activity that will not result in direct or indirect changes in the environment (CEQA Guidelines section 15378(b)(5)).

Fiscal Impact:

There is no fiscal impact associated with the acceptance of the financial audit.

Public Noticing:

The City of Monte Sereno's Council meeting agenda was posted on the bulletin board outside of Monte Sereno's City Hall and the agenda with this staff report can be accessed on the City of Monte Sereno's website located at www.montesereno.org.

Attachments:

Financial Statements for June 30, 2025
Required Communications for the Year Ended June 30, 2025

Memorandum of Internal Control for the Year Ended June 30, 2025 Monte Sereno GANN 2025

Financial Statements
June 30, 2025
City of Monte Sereno

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City of Monte Sereno
Table of Contents
June 30, 2025
Independent Auditor’s Report ..................................................................................................................... 1 Management’s Discussion and Analysis ..................................................................................................... 5 Basic Financial Statements
Statement of Net Position (Government-Wide) .............................................................................................. 13 Statement of Activities (Government-Wide) .................................................................................................. 14 Governmental Funds – Balance Sheet ............................................................................................................ 15 Reconciliation of the Governmental Funds Balance Sheet
with the Statement of Net Position (Government-Wide) ................................................................................ 16 Statement of Revenues, Expenditures and Changes in Fund Balances........................................................... 17 Reconciliation of the Net Change in Fund Balances –
Total Governmental Funds with the Statement of Activities (Government-Wide) ........................................ 18 Notes to Financial Statements ......................................................................................................................... 19 Required Supplementary Information
Statement of Revenues, Expenditures and Changes in Fund Balance – Budget and Actual – General Fund ................................................................................................................. 42 Statement of Revenues, Expenditures and Changes in Fund Balance – Budget and Actual – Law Enforcement Fund ................................................................................................. 43 Statement of Revenues, Expenditures and Changes in Fund Balance – Budget and Actual – Roadway and Street Fund ............................................................................................. 44 Miscellaneous Plan – Cost-Sharing Multiple-Employer Defined Pension Plan – Schedule of the Proportionate Share of the Net Pension Liability/(Asset) ..................................................... 45 Miscellaneous Plan – Cost-Sharing Multiple-Employer Defined Pension Plan – Schedule of Pension Contributions ................................................................................................................. 46 Schedule of Changes in Total Other Post-Employment Benefits Liability and Related Ratios ............................................................................................................................ 47 Note to Budgetary Information ....................................................................................................................... 48 Supplementary Information
Non-Major Governmental Funds – Combining Balance Sheet ...................................................................... 50 Non-Major Governmental Funds – Combining Statement of Revenues, Expenditures and Changes in Fund Balances ................................................................................................. 51 Independent Auditor’s Report on Internal Controls Over Financial Reporting and on Compliance and Other Matters based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards .......................................................................................................................................... 53

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INDEPENDENT AUDITOR’S REPORT
To the Honorable Mayor and City Council
City of Monte Sereno, California
Report on the Audit of the Financial Statements
Opinions
We have audited the accompanying financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of the City of Monte Sereno (City), California, as of and for the year ended June 30, 2025, and the related notes to the financial statements, which collectively comprise the City’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, each major fund, and the aggregate remaining fund information of the City as of June 30, 2025, 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 Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the City and to meet our other ethical responsibilities, in accordance with the relevant ethical requirement 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.

Responsibilities of Management for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of the 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 City’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. 1

Auditor’s 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 auditor’s 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 City’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 City’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.

2

Required Supplementary Information
Accounting principles generally accepted in the United States of America require that the Management’s Discussion and Analysis and other required supplementary information as listed in the Table of Contents 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.

Supplementary Information
Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City’s basic financial statements. The accompanying Supplementary Information, as listed in the Table of Contents, is presented for purposes of additional analysis 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 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 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 Supplementary Information is fairly stated, in all material respects, in relation to the basic financial statements as a whole.

Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated June 26, 2026, 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. 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. 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.

Pleasant Hill, California
June 26, 2026
3

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City of Monte Sereno
Management’s Discussion and Analysis
For the Year Ended June 30, 2025
This section of the City of Monte Sereno’s Annual Financial Report provides a narrative overview and analysis of the City’s financial activities for the fiscal year ended June 30, 2025 (Fiscal 2025). Comparative financial information is included, as appropriate, for the fiscal year ended June 30, 2024 (Fiscal 2024). The Management’s Discussion and Analysis is to be read in conjunction with the Basic Financial Statements and the Required Supplementary Information.

The City recognizes and acknowledges that this Annual Financial Report is dated June 26, 2026 for the year ended June 30, 2025. The delays in the City’s financial reporting were a result of internal control weaknesses, which have been addressed in Fiscal 2026. While this Annual Financial Report is for 2025, it includes certain relevant information regarding actions underway through to the report date, which is in Fiscal 2026, so readers can put the financial information presented and comments into context.

FISCAL 2025 FINANCIAL HIGHLIGHTS
 Net Position: The City’s total net position was $4,954,604, which increased by $601,994 from the prior year’s net position of $4,352,610.
 Revenues and Expenses: Total revenues for the fiscal year were $5,764,880, an increase of $621,264 from the prior year total revenue of $5,143,616, primarily due to a rise in charges for services and property taxes. Total expenses amounted to $5,162,886, a decrease of $447,596 from the prior year total expenses of $5,610,482.
 Unrestricted Net Position: The City’s Unrestricted Net Position, which is available for ongoing operations and capital needs, was $4,317,079 an increase of $371,838 from the prior year’s unrestricted net position of $3,945,241.

OVERVIEW OF THE ANNUAL FINANCIAL REPORT
This Annual Financial Report is in four parts:

1. Management’s Discussion and Analysis (MD&A).

2. Basic Financial Statements, which include the government-wide and fund financial statements, along with the notes to the financial statements.

3. Required Supplementary Information.

4. Combining Financial Statements for non-major governmental funds.

Basic Financial Statements
The Basic Financial Statements are comprised of Government-Wide Financial Statements and Fund Financial Statements. These two sets of financial statements provide the reader with two different viewpoints of the City’s financial activities and financial position.

The Government-Wide Financial Statements provide a long-term view of the City’s activities as a whole and comprise the Statement of Net Position and Statement of Activities. The Statement of Net Position provides information about the financial position of the City as a whole, including all its capital assets and long-term liabilities on a full accrual basis, similar to the reporting used by private corporations. The Statement of Activities provides information about the City’s revenues and expenses, also on a full accrual basis, with the emphasis on measuring net revenues and/or expenditures for each of the City’s activities.

The Statement of Activities explains in detail the change in Net Position for the fiscal year. 5

City of Monte Sereno
Management’s Discussion and Analysis
For the Year Ended June 30, 2025
All the City’s activities are required to be grouped into governmental activities and business-type activities.

The entire amount in the Statement of Net Position and Statement of Activities is also required to be separated into governmental activities or business-type activities to provide a summary of these two activities. In the case of the City of Monte Sereno, there are no business-type activities as of June 30, 2025.

The Fund Financial Statements report the City’s operations in more detail than the government-wide statements and focus primarily on the short-term activities of the City’s general fund and other major funds. The Fund Financial Statements measure only current revenues and expenditures and fund balance; they exclude capital assets, long-term debt, and other long-term amounts from the balance sheets. Major funds account for the major financial activities of the City and are presented individually, while the activities of non-major funds are presented in summary, with supplementary schedules (i.e., combining statements) presenting the detail for each of these funds. Major funds are explained later in Management’s Discussion and Analysis.

Government-Wide Financial Statements
The Statement of Net Position and the Statement of Activities present information about the following:

Governmental activities – All of the City’s basic services are governmental activities, including general government, public safety, transportation and public works. These services are supported by general City revenues such as property taxes, and by specific program revenues such as developer fees.

Government-wide financial statements are prepared on the accrual basis, which means they measure the flow of all economic resources of the City as a whole.

Fund Financial Statements
Fund financial statements provide detailed information about each of the City’s most significant funds, called major funds. The concept of major funds, and the determination of which are major funds, is established by generally accepted accounting principles. Each major fund is presented individually, with all non-major funds summarized and presented in a single column. Subordinate schedules present the detail of these non-major funds. Major funds present the major activities of the City for the fiscal year and may change from year to year because of changes in the pattern of the City’s activities.

Governmental fund financial statements are prepared on the modified accrual basis, which means they measure only current financial resources and uses. Capital assets and other long-lived assets, along with long-term liabilities, are not presented in the governmental fund financial statement balance sheets.

Unlike the government-wide financial statements, governmental fund financial statements focus on nearterm inflows and outflows of spendable resources, and on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating the City’s near-term financing requirements.

Notes to the Financial Statements
Notes to the 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 to the Financial Statements are immediately following the fund financial statements. 6

City of Monte Sereno
Management’s Discussion and Analysis
For the Year Ended June 30, 2025
Required Supplementary Information
The Required Supplementary Information (RSI) follows the Basic Financial Statements Notes to the Financial Statements. The RSI includes a comparison of the budgeted amounts for the General Fund and all major special revenue funds, as presented in the governmental fund financial statements. RSI also includes the pension schedules and retiree post-employment benefits schedules.

Combining and Individual Fund Statements and Schedules
Combining Balance Sheet and Combining Statements of Revenues, Expenditures and Changes in Fund Balances provide information for non-major governmental funds.

Government-Wide Financial Analysis
Net position may serve over time as a useful indicator of a government’s financial position. The City’s largest assets include investments and capital assets.

Key Financial Changes in Fiscal 2025:
 Cash and Investments: Increased by $199,173 to $6,507,899.  Receivables: Decreased by $130,043 to $39,658.
 Liabilities: The net pension liability decreased by $15,488 to $341,065, and other postemployment benefits (OPEB) liabilities decreased by $79,016 to $812,636, both primarily due to investment earnings on the CalPERS investment portfolio, changes in actuarial assumptions, and turnover of staff.  Capital Assets: The City’s net investment in capital assets is $294,176, a decrease of $14,955 from the prior year of $309,131 due to depreciation and writing off fully depreciated assets.

Change in Accounting Policy
In Fiscal 2025, the City implemented GASB 101 – Compensated Absences. This change is to better meet the information needs of financial statement users by updating the recognition and measurement guidance for compensated absences. Compensated absences are paid to employees for time off, termination payouts or noncash settlements (such as conversion to defined benefit postemployment benefits). Under GASB 101, the City accrues a liability for unused accumulated leave (e.g., vacation, sick leave, and compensatory time) when the leave is earned by employees for services already rendered, accumulates across reporting periods, and is more likely than not to be used for time off or otherwise settled. Leave types dependent on sporadic events (such as parental leave or jury duty) are not recognized until the leave commences
Where this would normally add to the accrued liability, this year’s amount decreased by $4,754 due to the departure several city employees.

Net Position Details:
 Unrestricted Net Position: Constitutes 87% ($4,317,079) of the total net position and is available to meet ongoing obligations to the City residents and creditors.  Restricted Net Position: Represents 8% ($343,349) of the total net position and is restricted primarily for capital projects and public safety improvements.
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City of Monte Sereno
Management’s Discussion and Analysis
For the Year Ended June 30, 2025
The following table shows a condensed statement of net position for the City for Fiscal 2025 with comparative figures for Fiscal 2024.

Statement of Net Position – Government Wide
Table 1
Governmental Activities
2025 2024
ASSETS
Cash and investments $6,507,899 $6,308,726
Receivables
Taxes 39,568 169,196
Other 90 505
Capital assets
Land and construction in progress 119,888 119,888
Depreciable capital assets, net 174,288 189,243
Total assets 6,841,733 6,787,558

DEFERRED OUTFLOWS OF RESOURCES
Deferred outflows of resources related to OPEB 61,574 107,173 Deferred outflows of resources related to pensions 418,649 757,317 Total deferred outflows of resources 480,223 864,490

LIABILITIES
Accounts payable and accrued liabilities 477,493 1,246,044 Compensated absences payable - current 69,113 93,116
Net pension liability 341,065 356,553
Compensated absences payable - noncurrent 19,249 0
Total other postemployment benefits liability 812,636 891,652 Total liabilities 1,719,556 2,587,365

DEFERRED INFLOWS OF RESOURCES
Deferred inflows of resources related to OPEB 386,882 369,664 Deferred inflows of resources related to pensions 260,914 342,409 Total deferred inflows of resources 647,796 712,073

NET POSITION
Net investment in capital assets 294,176 309,131
Restricted for:

Road maintenance 325,121 146,140
Storm drainage capacity 18,228 21,000
Total restricted net position 343,349 167,140
Unrestricted Net Position 4,317,079 3,876,339
Total Net Position $4,954,604 $4,352,610
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City of Monte Sereno
Management’s Discussion and Analysis
For the Year Ended June 30, 2025
Statement of Activities – Government Wide
Table 2
Government-Wide Activities Analysis
Governmental Revenues - Revenues for government-wide activities for Fiscal 2025 increased by $621,264 or 12% to $5,764,880 from the prior year of $5,143,616.  Property taxes increased $143,692 or 5% from the prior year to $3,112,465.  Charges for services increased $464,942 or 65%, from the prior year to $1,187,228. • All other revenues increased $12,630 or 1% from the prior year to $1,465,187.

The City’s charges for services increased by $464,942 from $722,286 to $1,187,228. The current year’s net increase was primarily due to increased revenues from building permit and encroachment permit fees.

Property taxes increased by $143,692 from $2,968,773 to $3,112,465. The current year’s increase was due to the 2% ad valorum tax and the increase in the assessed valuation from property sales.

Governmental Expenses – Total expenses in the current year were $5,162,886 or $447,596 lower than the prior year. General government expenses decreased by $516,366 to $3,385,113; Public safety decreased by $141,401 to $1,276,496, Public works increased by $274,093 to $468,175 and Community development expenses decreased by $63,922 to $33,102.

Governmental Activities
2025 2024
Revenue
Program Revenues
Charges for services $1,187,228 $722,286
Operating contributions and grants 462,276 193,255
General Revenues
Property taxes 3,112,465 2,968,773
Other taxes 641,676 265,178
Encroachment fees 130,639 470,025
Investment earnings 213,723 226,594
Other revenues 16,873 297,505
Total revenues 5,764,880 5,143,606
Expenses
General government 3,385,113 3,901,479
Public safety 1,276,496 1,417,897
Public works 468,175 194,082
Community development 33,102 97,024
Total expenses 5,162,886 5,610,482
Changes in net position 601,994 (466,866)
Net position - beginning 4,352,610 4,819,476
Net position - ending $4,954,604 $4,352,610
9

City of Monte Sereno
Management’s Discussion and Analysis
For the Year Ended June 30, 2025
General Fund
The City’s general fund provides financial resources for essential services such as administration, community services and general government activities. For Monte Sereno, a separate law enforcement fund has been established to account for the on-going contract with the Town of Los Gatos (Town) for public safety services.
 Revenues: Total revenues for the General Fund were $4,759,650, an increase of 4% over the prior year.

This increase was primarily in the areas of property taxes, property transfer tax, and license and permits.
 Expenditures: Total expenditures increased by 10% to $3,913,283 primarily due to the public safety contract increase, negotiated cost of living increases, insurance and animal control increases and the cost of the general plan.

Law Enforcement Fund
The City’s largest ongoing expenditure is for police services as provided by the Town, the cost of which increased in Fiscal 2025 as per the agreement that expires in June 2025. In addition, the City invested in public safety with the installation of automated license plate readers.  Revenues: Total revenues for the Law Enforcement Fund were $384,001, a 3% increase from the prior year due to increases in property taxes and COPS grant funding.  Expenditures: Total expenditures decreased by 6% to $1,317,349. This decrease was comprised of an increase in policing costs paid to the Town and the investment in automated license plate readers, offset by a lower remittance of COPS grants to the Town.

Roadway and Street Fund
The Roadway and Street Fund is used for expenditures relating to capital, rehabilitation and maintenance for roads, streets, curbs, signage and striping in the City.  Revenues: Fuel tax revenues increased to $210,065, from $179,589, or 17%, over the prior year. In addition, the City received $120,565 through building permits for expenditures on roadway maintenance and $257,476 in Measure B funds in Fiscal 2025.  Expenditures: Roadway maintenance expenditures in Fiscal 2025 were $419,823, an increase of $244,509 from the prior year due to additional road repair work expenditures in Fiscal 2025.

Other Governmental Funds
Other Governmental Funds consist of the Loma Serena Street Lighting Fund, the Storm Drainage Fund and the new Public Safety Fund.
 Revenues: Total revenues were $20,015, an increase over the prior year of $16,575.  Expenditures: Total expenditures increased over the prior year by $74,269 due to repairs and maintenance.
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City of Monte Sereno
Management’s Discussion and Analysis
For the Year Ended June 30, 2025
General Fund Budgetary Highlights
City Council hosted a study session to discuss City goals and priorities for Fiscal 2025 on March 19, 2024 and adopted those goals and priorities at the City Council meeting on April 2, 2024. These goals, consistent with prior years, are to:
 Provide Quality Public Services
 Maintain Community Character
 Enhance Mobility for Residents
 Maintain Community Safety
 Enhance Environmental Sustainability
Budget to Actual Revenues: General Fund revenues were $4,759,650 or $260,950 above the original adopted budget of $4,498,700. The variance was primarily due to the increase in license and permit fees ($204,289) offset by lower encroachment fees ($51,619).

Budget to Actual Expenditures: General Fund expenditures were $3,913,283 or $473,878 above the original adopted budget of $3,439,405. The variance was primarily due to the settlement of a lawsuit against the City in the amount of $713,428 , an increase in Community development costs associated with the completion of the housing element, and costs for additional license and permit application reviews.

Monte Sereno’s Housing Element Plan was certified by the State on July 5, 2024.

Improving Internal Control Processes with a New Financial Reporting System Since April 2024, the City’s goals have included improving its budgeting processes, strengthening its internal controls, and moving to a new financial reporting system. The City’s on-premise financial reporting system was replaced by the first of several modules of Tyler’s cloud-based ERP Pro 10 and Fiscal 2025 was closed using the financial module subsequent to fiscal year end.

During mid- to late Fiscal 2025, the City invested significant time and effort in creating the foundation to strengthen the City’s general accounting system with the implementation of a new, cloud-based financial reporting module. The City implemented the financial reporting module in early Fiscal 2026, followed by the payroll and human resources modules in late Fiscal 2026. The City expects to implement the external transparency module in Fiscal 2027 that will allow residents on-line access to view the City’s financial results.

Overall, the City’s weaknesses in internal controls in Fiscal 2024 continued in Fiscal 2025, although almost all the material weaknesses and significant deficiencies in internal controls have been addressed in Fiscal 2026. Improvements in the City’s budgeting process are currently underway as the first full year of financial reporting with the new system will be in Fiscal 2026 (the fiscal year ending on June 30, 2026).

The anticipated improvements to the City’s budgeting process will enable the City to meet the new financial reporting requirements as prescribed by GASB Statement No. 103, Financial Reporting Model Improvements, for Fiscal 2026. Processing all Fiscal 2026 transactions through the new financial reporting module will provide the data needed to support the enhanced disclosure requirements under GASB 103.

Overall, improvements regarding the City’s general accounting system (including resources, processes and technologies) were identified in November 2024, the cloud-based technology platform was approved by 11

City of Monte Sereno
Management’s Discussion and Analysis
For the Year Ended June 30, 2025
City Council in May 2025, and the first financial reporting module was implemented in September 2025.

Resource changes were made in February 2026 and additional technology and process implementation activities are planned for October 2026. In April 2027, the City intends to move to a biennial budget.

Long-Term Liabilities
The City’s long-term liabilities consist of compensated absences and employee benefits liabilities.

Compensated absences decreased by $4,754 to $88,362 in Fiscal 2025 with the implementation of GASB 101. The other post-employment benefit liabilities and net pension liabilities in the amount of $1,153,701 have decreased by $94,504 or 8% compared to the prior year. The decrease is reflective of CalPERS investment returns, changing actuarial assumptions, and employee attrition.

Economic Factors
The City is almost 100% residential and has no commercial zoning which results in City revenues largely from property taxes and building permits.

Property values continue to rise in Monte Sereno and property tax revenues have continued to increase each year. Economic factors in Silicon Valley influence property values while also influencing the cost of staffing for the City.

Building activity in Monte Sereno fluctuates due to many factors, predominantly determined by employment opportunities, interest rates and consumer confidence. The City continues to be a desirable place to live in the South Bay due to excellent schools, public safety, short commutes and easy access to open space. The City plans to improve its customer orientation while becoming more efficient to help new and existing residents update and renovate existing homes and structures, build new Accessory Dwelling Units (ADUs), and facilitate new residents to build the home of their dreams.

REQUEST FOR FINANCIAL INFORMATION
This financial report is designed to provide a general overview of the City of Monte Sereno’s finances and demonstrate accountability for the funds it receives. Questions regarding this report or requests for additional information should be directed to:

City of Monte Sereno
18041 Saratoga-Los Gatos Road
Monte Sereno, California 95030
12

CITY OF MONTE SERENO

STATEMENT OF NET POSITION (GOVERNMENT-WIDE)
JUNE 30, 2025
Primary Government
Governmental
Activities
ASSETS
Cash and investments (Note 3) $6,507,899
Receivables
Taxes 39,568
Other 90
Capital assets (Note 5)
Land 119,888
Depreciable capital assets, net 174,288
Total assets 6,841,733

DEFERRED OUTFLOWS OF RESOURCES
Deferred outflows of resources related to OPEB (Note 7) 61,574 Deferred outflows of resources related to pensions (Note 6) 418,649 Total deferred outflows of resources 480,223

LIABILITIES
Current Liabilities:

Accounts payable and accrued liabilities 477,493
Compensated absences payable (Note 2) 69,113
Noncurrent Liabilities:

Net pension liability (Note 6) 341,065
Compensated absences payable (Note 2) 19,249
Total other postemployment benefits liability (Note 7) 812,636 Total liabilities 1,719,556

DEFERRED INFLOWS OF RESOURCES
Deferred inflows of resources related to OPEB (Note 7) 386,882 Deferred inflows of resources related to pensions (Note 6) 260,914 Total deferred inflows of resources 647,796
NET POSITION (Note 9)
Net investment in capital assets (Note 5) 294,176
Restricted for:

Road maintenance 325,121
Storm drainage capacity 18,228
Total restricted net position 343,349
Unrestricted net position 4,317,079
Total net position $4,954,604
See accompanying notes to financial statements
13

CITY OF MONTE SERENO

STATEMENT OF ACTIVITIES (GOVERNMENT-WIDE)
FOR THE YEAR ENDED JUNE 30, 2025
Net (Expense)
Revenue and
Changes in
in Net Position
Program Revenues Primary Government
Operating
Charges for Grants and Governmental
Functions/Programs Expenses Services Contributions Activities Primary Government:

Governmental Activities:

General government $3,385,113 $1,011,189 ($2,373,924)
Public safety 1,276,496 8,031 $194,664 (1,073,801)
Public works 468,175 120,565 267,612 (79,998)
Community development 33,102 47,443 14,341
Total Governmental Activities $5,162,886 $1,187,228 $462,276 (3,513,382) General Revenues:

Taxes:

Property taxes 3,112,465
Sales taxes 7,230
Fuel taxes 210,065
Real property transfer taxes 130,639
Encroachment fees 424,381
Investment earnings 213,723
Other revenue 16,873
Total general revenues 4,115,376
Change in Net Position 601,994
Net Position, Beginning 4,352,610
Net Position, Ending $4,954,604
14

GOVERNMENTAL FUNDS

BALANCE SHEET
JUNE 30, 2025
Law Roadway Other Total
Enforcement and Street Governmental Governmental
General Fund Fund Funds Funds
ASSETS
Cash and investments $6,079,283 $85,771 $316,226 $26,619 $6,507,899 Receivables
Taxes 30,673 8,895 39,568
Other 90 90
Due from other funds 143,530 143,530
Total Assets $6,253,486 $85,771 $325,121 $26,709 $6,691,087

LIABILITIES
Accounts payable and accrued liabilities $324,133 $152,960 $400 $477,493 Due to other funds 143,530 143,530
Total Liabilities 324,133 152,960 143,930 621,023

FUND BALANCES
Fund balance (Note 9):

Restricted for:

Road maintenance 325,121 325,121
Storm drainage capacity 18,228 18,228
Unassigned 5,929,353 (67,189) (135,449) 5,726,715
TOTAL FUND BALANCES 5,929,353 (67,189) 325,121 (117,221) 6,070,064 Total Liabilities
and Fund Balances $6,253,486 $85,771 $325,121 $26,709 $6,691,087 See accompanying notes to financial statements

CITY OF MONTE SERENO
15

CITY OF MONTE SERENO
Reconciliation of the

GOVERNMENTAL FUNDS BALANCE SHEET
with the

STATEMENT OF NET POSITION (GOVERNMENT-WIDE)
JUNE 30, 2025
Fund Balance - Total Governmental Funds $6,070,064
Amounts reported for Governmental Activities in the Statement of Net Position are different from those reported in the Governmental Funds because of the following:

CAPITAL ASSETS TRANSACTIONS
Capital assets used in Governmental Activities are not current assets or financial resources and therefore are not reported in the Governmental funds. 294,176

LONG TERM ASSETS, LIABILITIES AND DEFERRED OUTFLOWS/INFLOWS OF RESOURCES The assets, deferred outflows of resources, liabilities and deferred inflows of resources below are not due and payable in the current period and therefore are not reported in the Funds:

Compensated absences (88,362)
Net pension liability (341,065)
Total other post employment liability (812,636)
Deferred outflows of resources related to OPEB 61,574
Deferred outflows of resources related to pensions 418,649 Deferred inflows of resources related to OPEB (386,882) Deferred inflows of resources related to pensions (260,914) NET POSITION OF GOVERNMENTAL ACTIVITIES (GOVERNMENT-WIDE) $4,954,604 See accompanying notes to financial statements
16

CITY OF MONTE SERENO

GOVERNMENTAL FUNDS

STATEMENT OF REVENUES, EXPENDITURES

AND CHANGES IN FUND BALANCES
FOR THE YEAR ENDED JUNE 30, 2025
Law Roadway Other Total
Enforcement and Street Governmental Governmental
General Fund Fund Funds Funds

REVENUES
Property taxes $2,920,312 $189,337 $2,816 $3,112,465
Sales taxes 7,230 7,230
Fuel taxes $210,065 210,065
Encroachment fees 424,381 424,381
Real property transfer taxes 130,639 130,639
Community development fee 47,443 47,443
Licenses and permits 1,011,189 120,565 1,131,754
Investment earnings 206,263 7,460 213,723
Fines and penalties 8,031 8,031
Intergovernmental 4,488 194,664 263,124 462,276
Other revenue 7,705 9,168 16,873
Total Revenues 4,759,650 384,001 601,214 20,015 5,764,880

EXPENDITURES
Current:

General government 3,880,181 81,835 2,410 3,964,426
Public safety 1,235,514 40,982 1,276,496
Public works 419,823 48,352 468,175
Community development 33,102 33,102
Total Expenditures 3,913,283 1,317,349 422,233 89,334 5,742,199

EXCESS OF REVENUES
OVER (UNDER) EXPENDITURES 846,367 (933,348) 178,981 (69,319) 22,681 OTHER FINANCING SOURCES (USES) (Note 4)
Transfers in 900,000 900,000
Transfers out (900,000) (900,000)
Total Other Financing Sources (Uses) (900,000) 900,000
NET CHANGE IN FUND BALANCES (53,633) (33,348) 178,981 (69,319) 22,681 FUND BALANCES, BEGINNING 5,982,986 (33,841) 146,140 (47,902) 6,047,383 FUND BALANCES, ENDING $5,929,353 ($67,189) $325,121 ($117,221) $6,070,064 See accompanying notes to financial statements
17

CITY OF MONTE SERENO
Reconciliation of the

NET CHANGE IN FUND BALANCES - TOTAL GOVERNMENTAL FUNDS
with the

STATEMENT OF ACTIVITIES
FOR THE YEAR ENDED JUNE 30, 2025
Revenues, Expenditures and Changes in Fund Balance, which measures only changes in current assets and current liabilities on the modified accrual basis, with the Change in Net Position of Governmental Activities reported in the Statement of Activities, which is prepared on the full accrual basis.

NET CHANGE IN FUND BALANCES - TOTAL GOVERNMENTAL FUNDS $22,681 Amounts reported for governmental activities in the Statement of Activities are different because of the following:

CAPITAL ASSETS TRANSACTIONS
Governmental Funds report capital outlays as expenditures. However, in the Statement of Activities the cost of those assets is capitalized and allocated over their estimated useful lives and reported as depreciation expense.

Capital outlay and improvement expenditures are added back to fund balance Depreciation expense is deducted from fund balance (14,955)

NON-CURRENT ITEMS
The amounts below included in the Statement of Activities do not provide or (require) the use of current financial resources and therefore are not reported as revenue or expenditures in governmental funds (net change):

Compensated absences 4,754
Accounts payable and accrued liabilities 815,000
Net pension liability and deferred outflows/inflows of resources related to pensions (241,685) Net OPEB liability and deferred outflows/inflows of resources related to OPEB 16,199 CHANGE IN NET POSITION OF GOVERNMENTAL ACTIVITIES, (GOVERNMENT-WIDE) $601,994 See accompanying notes to financial statements
18

City of Monte Sereno
Notes to Financial Statements
June 30, 2025
NOTE 1 – GENERAL
The City of Monte Sereno (the City) was incorporated on May 14, 1957, and operates under the CouncilManager form of government. The City Council has five elected members. The City provides services to its citizens directly and through joint powers authorities on a regional basis.

Direct services include public safety (police services), public works (roads and streets), community development (planning and zoning), building services (construction plan checks, building permits and building inspections), code enforcement and general administration.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies of the City conform to accounting principles generally accepted in the United States of America as applicable to governments. The Governmental Accounting Standards Board (GASB) is the accepted standard setting body for governmental accounting and financial reporting principles.

Reporting Entity
A reporting entity is comprised of the primary government, component units, and other organizations that are included to ensure the financial statements are not misleading. The primary government of the City consists of all funds, departments, boards, and agencies that are not legally separate from the City.

Basis of Presentation
Government-Wide Financial Statements
While separate government-wide and fund financial statements are presented, they are interrelated. The governmental activities column incorporates data from governmental funds. As a general rule, the effect of interfund activity has been eliminated from the government-wide financial statements.

Fund Financial Statements
The fund financial statements provide information about the City’s funds. The emphasis of fund financial statements is on major governmental funds, each displayed in a separate column. All remaining governmental funds are aggregated and reported as non-major funds. Major individual governmental funds are reported as separate columns in the fund financial statements.

The City reports the following major governmental funds:

The General Fund is the City’s primary operating fund. It accounts for all financial resources of the general government, except those accounted for in other funds. For the City, the General Fund includes general government, public works, community development and administration.

The Law Enforcement Special Revenue Fund accounts for all financial activity related to the City’s Law Enforcement Services. The fund’s major sources of revenue are a special assessment parcel tax, which must be used exclusively for obtaining, operating, and maintaining police protection services within the City, and government grants. Other revenues in this fund include fines and penalties received from traffic and parking enforcement in the City, which expenditures are restricted to Law Enforcement Services. 19

City of Monte Sereno
Notes to Financial Statements
June 30, 2025
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued The Roadway and Street Special Revenue Fund accounts for revenues received from various sources that are restricted to expenditures relating to capital, rehabilitation and maintenance for roads, streets, curbs, signage and striping in the City. These revenues include those received from the State of California on all gasoline and diesel purchases under the provision of the Streets and Highways that are restricted to uses related to transit construction and improvements, and maintenance. Intergovernmental/other agencies revenue includes monies disbursed by the Valley Transportation Authority that were collected under the Local Streets and Roads program in Measure B. Other revenues include funds received under the Transportation Development Act that are restricted for bicycle routes and pedestrian facilities improvements. Also, the City receives vehicle road impact fees from developers and encroachment fees from solid waste haulers and others to use the public right-of-way, all of which are restricted for roads and streets, including sweeping and cleaning, in the City. All funds in the Roadway and Street Special Revenue Fund are restricted.

In Fiscal 2025, the City created a new fund, Public Safety Special Revenue Fund, to account for revenues received from various sources that are restricted to expenditures relating to public safety in the City, such as fines and penalties, and to record expenditures previously made in the General Fund for public safety.

The City may use an interfund transfer to finance deficits in the Public Safety Fund.

Measurement Focus and Basis of Accounting
The accounting and financial reporting treatment is determined by the applicable measurement focus and basis of accounting. Measurement focus indicates the type of resources being measured such as current financial resources or economic resources. The basis of accounting indicates the timing of transactions or events for recognition in the 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 imposed by the provider have been met.

The governmental fund financial statements 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 City considers revenues to be available generally if they are collected within 60 days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, expenditures related to compensated absences, and claims and judgments, are recorded only when payment is due. General capital asset acquisitions are reported as expenditures in governmental funds. Issuance of long-term debt and acquisitions under capital leases are reported as other financing sources.

20

City of Monte Sereno
Notes to Financial Statements
June 30, 2025
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued Property taxes, sales taxes, real property transfer taxes, charges for services and interest associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized as revenues of the current fiscal period. Fines, licenses, use of property, and permit revenues are not susceptible to accrual because they generally are not measurable until received. Entitlements are recorded as revenues when all eligibility requirements are met, including any time requirements, and the amount is received during the period or within the availability period for this revenue source (within 60 days of year end). Expenditure-driven grants are recognized as revenue when the qualifying expenditures have been incurred and all other eligibility requirements have been met, and the amount is received during the period or within the availability period for this revenue source (within 60 days of year end). All other revenue items are considered to be measurable and available only when cash is received by the City.

Capital Assets
Capital assets, which include property, plant and equipment, are stated at cost. Donated assets are recorded at their estimated acquisition value at the date of donation. The City defines capital assets as assets with an initial cost of more than $10,000 and an estimated useful life greater than one year.

Additions, improvements, and other capital outlays that significantly extend the useful life of an asset are capitalized. Other costs incurred for repairs and maintenance are expensed as incurred.

Buildings 50 Years
Vehicles 4-10 Years
Furniture, fixtures, and equipment 5-50 Years
Deferred Inflows/Outflows of Resources
In addition to assets, the statement of net position will report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position that applies to a future period(s) and so will not be recognized as an outflow of resources (expense) until then. In addition to liabilities, the statement of net position or balance sheet will report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position or fund balance that applies to a future period(s) and so will not be recognized as an inflow of resources (revenue) until that time.

Interfund Transfers
Interfund transfers (1) are used to move revenues from the fund that statute or budget requires collecting them to the fund that statute or budget requires to expend them, and (2) use unrestricted revenues collected in the General Fund to finance various programs accounted for in other funds. 21

City of Monte Sereno
Notes to Financial Statements
June 30, 2025
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued Property Taxes
The County of Santa Clara assesses all properties; and it bills, collects, and distributes property taxes and special assessments as follows:

Secured/Unsecured
Lien dates January 1
Levy dates July 1
Due dates 50% on November 1 and February 1
Delinquent as of December 10 and April 10
The term “unsecured” refers to taxes on personal property other than real estate, land and buildings. These taxes are secured by liens on the property being taxed. Property tax revenue is recognized in accordance with applicable GASB pronouncements, that is in the fiscal year for which the taxes have been levied, provided they become available. Available means (a) due, or (b) past due and receivable within the current period and collected within the current period or expected to be collected soon enough thereafter (not to exceed 60 days) to be used to pay liabilities in the current period. The County of Santa Clara remits the entire amount of the tax levy to the City (net of County administrative fees), and handles all delinquencies, retaining any interest and penalties.

Compensated Absences
Accumulated vacation and vested sick leave benefits are recorded as an expense and liability in the government-wide financial statements. The liability is calculated in accordance with generally accepted accounting principles and based on whether or not it is more likely than not that leave will be used before the employee leaves the City. Activity for June 30, 2025 is as follows:

Balance on
June 30, 2024 Net Change
Balance on
June 30, 2025
Current
Portion
$93,116 ($4,754) $88,362 $69,113
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 certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.

Cash and Cash Equivalents
For financial statement reporting purposes, the City considers cash and cash equivalents as short-term highly liquid investments that are both readily convertible to known amounts of cash and so near their maturity that they present insignificant risk of changes in value because of changes in interest rates. The City has investments in U.S. Treasury Obligations and funds in the Local Agency Investment Fund (LAIF), which meets the definition of a cash equivalent, so the combined balances are reported as “cash and investments.”
22

City of Monte Sereno
Notes to Financial Statements
June 30, 2025
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued Fund Balance Classification
The governmental fund financial statements present fund balances based on classifications that comprise a hierarchy that is based primarily on the extent to which the City is bound to honor constraints on the specific purposes for which amounts in the respective governmental funds can be spent. The classifications used in the governmental fund financial statements are as follows:

Nonspendable: This classification includes amounts that cannot be spent because they are either (a) not in spendable form or (b) are legally or contractually required to be maintained intact. The City did not have any nonspendable resources as of June 30, 2025.

Restricted: This classification includes amounts for which constraints have been placed on the use of the resources either (a) externally imposed by creditors (such as through a debt covenant), grantors, contributors, or laws or regulations of other governments, or (b) imposed by law through constitutional provisions or enabling legislation. The City has classified traffic safety fines and grants as being restricted because their use is restricted by the terms of the grant and state statute for traffic safety expenditures, which are included in the Law Enforcement Fund. Gasoline and diesel taxes are restricted by state statute for use on road and street repair and maintenance projects, which are included in the Roadway and Street Fund and Loma Serena Street Lighting District funds are classified as restricted because the use of these funds are restricted for operations and maintenance of the respective light districts, as imposed by the municipal code. Storm drainage has been classified as restricted because these funds are collected from developers and set aside for capacity purposes, as mandated by state statute.

Finally, Public safety has also been restricted for that use.

Committed: This classification includes amounts that can be used only for specific purposes pursuant to constraints imposed by formal action of the City Council. These amounts cannot be used for any other purpose unless the City Council removes or changes the specified use by taking the same type of action (ordinance or resolution) that was employed when the funds were initially committed. This classification also includes contractual obligations to the extent that existing resources have been specifically committed for use in satisfying those contractual requirements. The City did not have any committed resources as of June 30, 2025.

Assigned: This classification includes amounts that are constrained by the City’s intent to be used for a specific purpose but are neither restricted nor committed. This classification also includes the remaining positive fund balance for all governmental funds except for the General Fund.

Unassigned: This classification includes the residual fund balance for the General Fund. The Unassigned classification may also include negative residual fund balance of any other governmental fund that cannot be eliminated by offsetting of Assigned fund balance amounts. The City classifies negative residual funds balances as “Unassigned”.

Use of Restricted Resources
The City uses restricted fund balances first, followed by committed resources, and then assigned resources, as appropriate opportunities arise, but reserves the right to selectively spend unassigned resources first to defer the use of these other classified funds. 23

City of Monte Sereno
Notes to Financial Statements
June 30, 2025
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The City categorizes its fair value measurements within the fair value hierarchy established by GAAP. The fair value hierarchy categorizes the inputs to valuation techniques used to measure fair value into three levels based on the extent to which inputs used in measuring fair value are observable in the market. • Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. • Level 2 inputs are inputs - other than quoted prices included within level 1 - that are observable for an asset or liability, either directly or indirectly. • Level 3 inputs are unobservable inputs for an asset or liability.

If the fair value of an asset or liability is measured using inputs from more than one level of the fair value hierarchy, the measurement is considered to be based on the lowest priority level input that is significant to the entire measurement.

Subscription-Based Information Technology Arrangements
A Subscription-Based Information Technology Arrangements (SBITA) is a contract that conveys control of the right to use another party’s (a SBITA vendor’s) information technology (IT) software, alone or in combination with tangible capital assets (the underlying IT assets), as specified in the contract for a period of time in an exchange-like transaction. Subscription assets are reported with other capital assets and subscription liabilities are reported with long-term debt on the statement of net position. To date, all SBITAs entered into by the City have not been material.

NOTE 3 – CASH AND INVESTMENTS
The City’s dependence on property tax receipts requires it to maintain significant cash reserves to finance operations during certain portions of the year. The City pools cash from all sources so that it can safely invest at maximum yields, while individual funds can make expenditures at any time. All investments are carried at fair value.

Summary of Cash and Investments
Cash and Investments as of June 30, 2025, consist of the following at fair value:

Cash with financial institutions $2,125,561
Investments 4,382,338
Total cash and investments $6,507,899

24

City of Monte Sereno
Notes to Financial Statements
June 30, 2025
NOTE 3 – CASH AND INVESTMENTS - Continued
Policies and Practices
The City is authorized under California Government Code and the City’s investment policy to make direct investments in U.S. Treasury instruments and securities of the U.S. Government, the Local Agency Investment Fund (LAIF), and federally insured deposits in commercial banks and savings and loan associations in the local area.

The City’s investments were in compliance with the above provisions as of and for the year ended June 30, 2025.

General Authorizations
The table below identifies the investment types that are authorized for the City by the California Government Code. Limitations as they relate to interest rate risk and concentration of credit risk are indicated in the schedules below:

Authorized Investment Type
Maximum
Remaining
Maturity
Maximum
Percentage of
Portfolio
Maximum
Investment in
One Issuer
U.S. Treasury Obligations 5 years None None
U.S. Agency Securities 5 years None None
Local Agency Investment Fund (LAIF) N/A None $75 Million Interest Rate Risk and Fair Value Hierarchy
Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment, the greater the sensitivity of its fair value to changes in market interest rates. The City manages its exposure to interest rate risk by purchasing only short-term investments as necessary to provide the cash flow and liquidity needed for operations.

As of June 30, 2025, the City had the following investments. All investments are in the State’s investment pool.

Fair Matures in
Value 12 Months or less
Local Agency Investment Fund (LAIF) $163,878 $163,878
U.S. Treasury Obligations 4,218,460 4,218,460
Total $4,382,338 $4,382,338
The City categorizes its fair value measurements within the fair value hierarchy established by generally accepted accounting principles. The hierarchy is based on the valuation inputs used to measure fair value of the assets. Level 1 inputs are quoted prices in an active market for identical assets; Level 2 inputs are significant other observable inputs; and Level 3 inputs are significant unobservable inputs.

U.S. Treasury Obligations are classified in Level 1 of the fair value hierarchy are valued using quoted prices in active markets. The City does not have any Level 2 or Level 3 investments. 25

City of Monte Sereno
Notes to Financial Statements
June 30, 2025
NOTE 3 – CASH AND INVESTMENTS - Continued
Concentration of Credit Risk
The City’s investment policy contains no limitations on the amount that can be invested in any one issuer beyond the amount stipulated by the California Government Code.

Custodial Credit Risk - Deposits
This is the risk that, in the event of a bank failure, the City's deposits may not be returned. The City’s policy, as well as the California Government Code, requires that a financial institution secure deposits made by state or local governmental units by pledging securities in an undivided collateral pool held by a depository regulated under state law (unless so waived by the governmental unit). The market value of the pledged securities in the collateral pool must equal at least 110% of the total amount deposited by the public agencies. California law also allows financial institutions to secure public deposits by pledging first trust deed mortgage notes having a value of 150% of the secured public deposits and letters of credit issued by the Federal Home Loan Bank of San Francisco having a value of 105% of the secured deposits.

As of June 30, 2025, the City's bank balance of $1,871,737 is either insured or collateralized with securities held by the pledging financial institution's trust department or agent, but not in the City’s name.

Custodial Credit Risk - Investments
This is the risk that, in the event of the failure of the counterparty, the City will not be able to recover the value of its investments or collateral securities that are in possession of an outside party. Neither the California Government Code nor the City’s investment policy contains legal or policy requirements that would limit the exposure to custodial risk.

Investment in the State Investment Pool
The City is a voluntary participant in the LAIF that is regulated by California government code Section 16429 under the oversight of the Treasurer of the State of California. The fair value of the City's investment in the pool is reported in the accompanying financial statements at amounts based upon the City's pro-rata share of the fair value provided by LAIF for the entire LAIF portfolio (in relation to the amortized cost of that portfolio). The balance available for withdrawal is based on the accounting records maintained by LAIF and is recorded on the amortized cost basis. The pool is not registered with the Securities and Exchange Commission (SEC) and is not rated.

The City recognizes the fair value measurement of its investments on a recurring basis, based on the hierarchy established by generally accepted accounting principles. The fair value hierarchy, which has three levels, is based on the valuation inputs used to measure an asset’s fair value: Level 1 inputs are quoted prices in active markets for identical assets; Level 2 inputs are significant other observable inputs; Level 3 inputs are significant unobservable inputs. Investments in the Local Agency Investment Funds/State Investment Pool are not measured using the input levels above because the City's transactions are based on a stable net asset value per share. All contributions and redemptions are transacted at $1.00 net asset value per share.
26

City of Monte Sereno
Notes to Financial Statements
June 30, 2025
NOTE 4 – INTERFUND TRANSACTIONS
During the course of operations, transactions may occur between funds to account for goods received or services rendered. Transactions between funds that are representative of lending or borrowing arrangements outstanding at the end of the fiscal year are referred to as advances to/from other funds, which represent the noncurrent portion of any interfund loans. All other outstanding balances between funds are reported as due to/from other funds.

NOTE 5 – CAPITAL ASSETS
The City reports all capital assets, in the Government-Wide Statement of Net Position.

The following table presents the capital assets activity for the year ended June 30, 2025.

Balance at Balance at
June 30, 2024 Additions Deletions June 30, 2025
Capital assets, not being depreciated:

Land $119,888 $119,888
Total capital assets not being depreciated 119,888 119,888 Capital assets being depreciated:

Buildings Improvements 409,663 409,663
Computer Equipment 46,395 ($46,395)
Office Equipment 39,563 39,563
Vehicles 43,306 43,306
Total capital assets being depreciated 538,927 (46,395) 492,532 Less accumulated depreciation for:

Buildings Improvements 263,412 $8,125 271,537
Computer Equipment 46,395 (46,395)
Office Equipment 33,690 643 34,333
Vehicles 6,187 6,187 12,374
Total accumulated depreciation 349,684 14,955 (46,395) 318,244 Net capital assets being depreciated 189,243 (14,955) 174,288 Total capital assets, net $309,131 ($14,955) $294,176
Depreciation expense was charged to the general government function. 27

City of Monte Sereno
Notes to Financial Statements
June 30, 2025
NOTE 6 – PENSION PLAN
General Information about the Pension Plans
Plan Description – All qualified permanent employees are eligible to participate in the City’s Miscellaneous Employee Pension Plan, cost-sharing multiple employer defined benefit pension plan administered by the California Public Employees Retirement System (CalPERS), which acts as a common investment and administrative agent for its participating member employers. Benefit provisions under the Plans are established by State statute and may be amended by City resolution. CalPERS issues publicly available reports that include a full description of the pension plans regarding benefit provisions, assumptions and membership information that can be found on the CalPERS website. www.calpers.ca.gov.

Benefits Provided – CalPERS provides service retirement and disability benefits, annual cost of living adjustments and death benefits to plan members, who must be public employees and beneficiaries.

Benefits are based on years of credited service, equal to one year of full-time employment. Members with five years of total service are eligible to retire at age 50 with statutorily reduced benefits. All members are eligible for non-duty disability benefits after 10 years of service. The death benefit is one of the following: the Basic Death Benefit, the 1957 Survivor Benefit, or the Optional Settlement 2W Death Benefit. The cost-of-living adjustments for each plan are applied as specified by the California Public Employees’ Retirement Law.

The Plans’ provisions and benefits in effect at June 30, 2025, are summarized as follows:

Hire date Prior to January 1, 2013 Starting January 1, 2013 Formula 2.0% @ 55 2.0% @ 62
Benefit vesting schedule 5 years of service 5 years of service Benefit payments Monthly for life Monthly for life
Minimum retirement age 50 52
Required employee contribution rates 7.00% 7.75%
Required employer contribution rates 11.88% 7.87%
Miscellaneous
Contributions – Section 20814(c) of the California Public Employees’ Retirement law requires that the employer contribution rates for all public employers are determined on an annual basis by the actuary and shall be effective on the July 1 following notice of a change in rate. Funding contributions for the Plan are determined annually on an actuarial basis as of June 30 by CalPERS. The actuarially determined rate is the estimated amount necessary to finance the costs of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. The City is required to contribute the difference between the actuarially determined rate and the contribution rates of employees. Employer contribution rates may change if plan contracts are amended. Payments made by the employer to satisfy contribution requirements that are identified by the pension plan terms as plan member contribution requirements are classified as plan member contributions.

For the year ended June 30, 2025, the contributions to the Plan were $68,691.

28

City of Monte Sereno
Notes to Financial Statements
June 30, 2025
NOTE 6 – PENSION PLAN – Continued
Pension Liabilities, Pension Expense and Deferred Outflows/Inflows of Resources Related to Pensions
For purposes of measuring the net pension liability and deferred outflows/inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the Plan and additions to/deductions from the Plan’s fiduciary net position have been determined on the same basis as they are reported by the CalPERS Financial Office. For this purpose, benefit payments (including refunds of employee contributions) are recognized when currently due and payable in accordance with the benefit terms. Investments are reported at fair value.

As of June 30, 2025, the City’s reported net pension liability for its proportionate share of the pension liability of the Plan is as follows:

Miscellaneous
Proportionate Share of Net Pension Liability $341,065
The City’s net pension liability for the Plan is measured as the proportionate share of the net pension liability. The net pension liability of the Plan is measured as of June 30, 2024, and the total pension liability for the Plan used to calculate the net pension liability was determined by an actuarial valuation as of June 30, 2023 rolled forward to June 30, 2024 using standard actuarial update procedures. The City’s proportion of the net pension liability was based on a projection of the City’s long-term share of contributions to the pension plan relative to the projected contributions of all participating employers, actuarially determined.

The City’s proportionate share of the net pension liability for the Plan as of June 30, 2023 and June 30, 2024 is as follows:

Miscellaneous Plans
Proportion - June 30, 2023 0.00713%
Proportion - June 30, 2024 0.00705%
Change - Increase (Decrease) -0.00008%

29

City of Monte Sereno
Notes to Financial Statements
June 30, 2025
NOTE 6 – PENSION PLAN – Continued
For the year ended June 30, 2025, the City recognized pension expense of $358,972. At June 30, 2025, the City reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources:

Deferred Deferred
Outflows Inflows
of Resources of Resources
Pension contributions subsequent to measurement date $68,691 Differences between actual and expected experience 29,488 ($1,151) Changes in assumptions 8,766
Difference between proportional and actual contributions (259,763) Adjustment due to differences in proportions 292,069
Net differences between projected and actual earnings on plan investments 19,635
Total $418,649 ($260,914)
The amount of $68,691 reported as deferred outflows of resources related to contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended June 30, 2026. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized as pension expense as follows:

Years Ending June 30
2026 $88,693
2027 12,037
2028 (4,957)
2029 (6,729)
$89,044

30

City of Monte Sereno
Notes to Financial Statements
June 30, 2025
NOTE 6 – PENSION PLAN – Continued
Actuarial Assumptions – For the measurement period ended June 30, 2024, the total pension liability was determined by rolling forward the June 30, 2023 total pension liability. The June 30, 2023 total pension liabilities were based on the following actuarial methods and assumptions for all benefit tiers:

Valuation Date
Measurement Date
Actuarial Cost Method
Actuarial Assumptions:

Discount Rate
Inflation
Salary Increases Varies by Entry Age and Service
Investment Rate of Return (1)
Mortality (2)
(1) Net of pension plan investment expenses; includes inflation. (2) The mortality table used was developed based on CalPERS-specific data. The probabilities of mortality are based on the 2021 CalPERS Experience Study and Review of Actuarial Assumptions. Mortality rates incorporate full generational mortality improvement using 80% of Scale MP-2020 published by the Society of Actuaries. For more details on this table, please refer to the 2021 experience study report from November 2021 that can be found on the CalPERS website.

2.30%

6.90% (2)
Derived using CalPERS Membership Data for all Funds
June 30, 2023
June 30, 2024
Entry-Age Normal Cost Method

6.90%
The underlying mortality assumptions and all other actuarial assumptions used in the June 30, 2023 valuation were based on the results of a November 2021 actuarial experience study for the period 2001 to 2019. Further details of the Experience Study can be found on the CalPERS website.

Discount Rate – The discount rate used to measure the total pension liability was 6.90%. The projection of cash flows used to determine the discount rate for the Plan assumed that contributions from all plan members in the Public Employees Retirement Fund (PERF) will be made at the current member contribution rates and that contributions from employers will be made at statutorily required rates, actuarially determined. Based on those assumptions, Plan’s fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on plan investments was applied to all periods of projected benefit payments to determine the total pension liability.

The long-term expected rate of return on pension plan investments was determined using a building-block method in which expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class.

In determining the long-term expected rate of return, CalPERS took into account both short-term and long-term market return expectations. Using historical returns of all the funds’ asset classes, expected compound (geometric) returns were calculated over the next 20 years using a building-block approach.

The expected rate of return was then adjusted to account for assumed administrative expenses of 10 basis points.

31

City of Monte Sereno
Notes to Financial Statements
June 30, 2025
NOTE 6 – PENSION PLAN – Continued
The expected real rates of return by asset class are as follows:

Asset Class (1)
Assumed
Asset
Allocation Real Return 1,2
Global Equity-Cap Weighted 30.0% 4.54%
Global Equity-Non-Cap Weighted 12.00% 3.84%
Private Equity 13.0% 7.28%
Treasury 5.0% 0.27%
Mortgage-backed Securities 5.0% 0.50%
Investment Grade Corporates 10.0% 1.56%
High Yield 5.0% 2.27%
Emerging Market Debt 5.0% 2.48%
Private Debt 5.0% 3.57%
Real Assets 15.00% 3.21%
Leverage -5.00% -0.59%
Total 100.00%
(1) An expected inflation of 2.30% used for this period. (2) Figures are based on the 2021 Asset Liability Management study.

Sensitivity of the Proportionate Share of the Net Pension Liability to Changes in the Discount Rate – The following presents the City’s proportionate share of the net pension liability for the Plan, calculated using the current discount rate for the Plan, as well as what the City’s proportionate share of the net pension liability would be if it were calculated using a discount rate that is 1-percentage point lower or 1- percentage point higher than the current rate:
1% Decrease 5.90%
Net Pension Liability $1,353,478
Current Discount Rate 6.90%
Net Pension Liability $341,065
1% Increase 7.90%
Net Pension Asset ($492,300)
Pension Plan Fiduciary Net Position – Detailed information about the pension plan’s fiduciary net position is available in the separately issued CalPERS financial reports. 32

City of Monte Sereno
Notes to Financial Statements
June 30, 2025
NOTE 7 – OTHER POST EMPLOYMENT BENEFITS
Post Employment Healthcare Plan (OPEB)
Plan Description – The City’s defined benefit post employment healthcare plan is a single-employer defined benefit plan provides medical benefits to employees and their spouses who satisfy the requirements for retirement under CalPERS (attained age 50 with five years of service or satisfaction of the requirements for a disability retirement.) No assets are accumulated in a trust that meets the criteria in paragraph 4 of GASB Statement No. 75.

Benefits Provided – The City provides medical insurance benefits to eligible retirees and their spouses.

Benefits are provided through CalPERS Health Insurance, and the cost of benefits is limited to the PERS Choice Single Health Plan Premium. The City's governing board has the authority to establish and amend the benefit terms as needed.

Employees Covered – At the June 30, 2025 measurement date, the following employees were covered by the benefit terms for the OPEB Plan:

Count
Inactive employees or beneficiaries currently receiving benefits 5 Inactive employees entitled to but not yet receiving benefits 3 Active employees 4
Total 12
Total OPEB Liability – The City’s Total OPEB liability was measured as of June 30, 2025, was determined by an actuarial valuation as of June 30, 2024 that was based on the following actuarial methods and assumptions:

Actuarial Assumptions:

Contribution Policy No pre-funding
Discount Rate 5.20% at June 30, 2025
Inflation 2.50% annually
Mortality, Retirement, Disability, Termination CalPERS 2000-2019 Experience Study Mortality Improvement Mortality projected fully generational with Scale MP-2021 Healthcare Trend Cost Rate Non-Medicare - 7.90% for 2026, decreasing to an ultimate rate of 3.45% in 2076 Medicare (Non-Kaiser) - 6.90% for 2026, decreasing to an ultimate rate of 3.45% in 2076 Medicare (Kaiser) - 5.65% for 2026, decreasing to an ultimate rate of 3.45% in 2076

33

City of Monte Sereno
Notes to Financial Statements
June 30, 2025
NOTE 7 – OTHER POST EMPLOYMENT BENEFITS - Continued
Change in Total OPEB Liability – The changes in the total OPEB liability for the City are as follows:

Total OPEB
Liability
Balance at June 30, 2024 $891,652
Changes for the year:

Service Cost 92,038
Interest on the Total OPEB Liability 37,440
Differences between Expected and Actual Experience (1,210) Benefit payments (62,036)
Administrative Expense
Changes of assumptions (145,248)
Net changes (79,016)
Balance at June 30, 2025 $812,636
Sensitivity of the Total OPEB liability to Changes in the Discount Rate – The following presents the total OPEB liability of the City if it were calculated using a discount rate that is one percentage point lower (4.20%) or one percentage point higher (6.20%) than the current rate, for year ended June 30, 2025:

Discount Rate
-1.0% Discount Rate Current Rate +1.0% Discount Rate

4.20% 5.20% 6.20%
$923,957 $812,636 $720,294
Sensitivity of the Total OPEB Liability to Changes in the Health Care Cost Trend Rates – The following presents the total OPEB liability of the City if it were calculated using health care cost trend rates that are one percentage point lower or one percentage higher than the current rate, for year ended June 30, 2025:

Healthcare Trend Rate
-1.0% Decrease Current Trend +1.0% Increase
$701,219 $812,636 $949,449
Expense and Deferred Outflows/Inflows of Resources Related to OPEB Under GASB Statement No. 75 – For the fiscal year ended June 30, 2025, the City recognized OPEB expense of $45,981. As of fiscal year ended June 30, 2025, the City reported deferred inflows of resources related to OPEB from the following sources:

Deferred Outflows Deferred Inflows
of Resources of Resources
Changes of assumptions $43,473 $247,449
Differences between expected and
actual experience 18,101 139,433
Total $61,574 $386,882
34

City of Monte Sereno
Notes to Financial Statements
June 30, 2025
NOTE 7 – OTHER POST EMPLOYMENT BENEFITS - Continued
The amounts reported as deferred inflows of resources related to OPEB will be recognized as expense as follows:

Fiscal Year Ended Annual
June 30 Amortization
2026 ($95,718)
2027 (120,739)
2028 (48,428)
2029 (20,900)
2030 (24,688)
Thereafter (14,835)
Total ($325,308)
NOTE 8 – COMMITMENTS AND CONTINGENCIES
The City is involved as a defendant in various legal proceedings. While it is not feasible to predict or determine the outcome in these cases, it is the opinion of the City that the outcome will have no materially adverse effect on the financial position of the City.

The City may receive State and Federal funds for specific purposes that are subject to audit by the grantor agencies. Such audits could generate expenditure disallowances under the terms of the grants. It is believed that any required reimbursements would not be material.

The City participates in a Public Entity Risk Pool. See Note 10 for details.

NOTE 9 – NATURE AND PURPOSE OF REPORTED FUND BALANCE CLASSIFICATIONS Fund Balance
In the fund financial statements, governmental funds report the following classifications of fund balance:

Non-Major Governmental Funds
Law Roadway Loma Serena Storm Public
General Enforcement and Streets Street Lighting Drainage Safety Fund Balance Classifications Fund Fund Fund Fund Fund Fund Total Restricted for:

Road maintenance $325,121 $325,121
Storm drainage cpacity $18,228 18,228
Total Restricted Fund Balances 325,121 18,228 343,349
Unassigned:

General Fund $5,929,353 5,929,353
Law Enforcement Fund ($67,189) (67,189)
Loma Serena Street Lighting Fund ($67,667) (67,667)
Public Safety Fund ($67,782) (67,782)
Total Unassigned Fund Balances 5,929,353 (67,189) (67,667) (67,782) 5,726,715 Total Fund Balances $5,929,353 ($67,189) $325,121 ($67,667) $18,228 ($67,782) $6,070,064 35

City of Monte Sereno
Notes to Financial Statements
June 30, 2025
NOTE 10 – RISK MANAGEMENT
The City is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; and injuries to employees. The City has joined Bay Cities Joint Powers Insurance Authority (Bay Cities JPIA). Bay Cities JPIA is a public entity risk pool that is currently operating a common risk management agency with 22 members. Annual premiums are paid by members and are adjusted retrospectively to cover costs. Excess premiums, if any, are returned to the members based on an equity allocation five years after the close of the program year. Member deductibles range from $5,000 to $350,000 with a self-insured retention of $1,000,000 by Bay Cities JPIA.

The City’s self-insured retention is $5,000. Bay Cities JPIA has purchased excess insurance up to $38,000,000 from a private company to provide coverage for losses and claims in excess of the stated limits.

The Bay Cities JPIA financial statements may be obtained directly from Bay Cities Joint Powers Insurance Authority, Bickmore, 1750 Creekside Oaks Drive Suite 200, Sacramento, CA 95833.

NOTE 11 – PARTICIPATION IN JOINT POWERS AUTHORITIES
The City participates in six joint powers authorities (JPAs) formed under the Joint Exercise of Powers Act of the State of California, which allows public agencies to jointly exercise common powers through cooperative agreements. These JPAs provide cost-effective access to regional services and programs. The City does not have an equity interest in these JPAs and is not liable for their debts beyond its agreed-upon contributions or contractual obligations.

As separate legal entities, these entities exercise full powers and authorities within the scope of the related joint powers agreements, including the preparation of annual budgets, accountability for all funds, and the power to make and execute contracts. All transactions between the JPAs and the City are recorded as operating revenues and expenditures in the applicable governmental functions.

Summaries of the JPAs that the City was a member of on June 30, 2025 are set forth below.

West Valley Stormwater Authority (West Valley Stormwater) West Valley Stormwater, formerly West Valley Clean Water Joint Powers Authority, provides stormwater permit compliance, regulatory support, and public education under the National Pollutant Discharge Elimination System (NPDES) program. Member agencies include the Cities of Monte Sereno, Saratoga, and Campbell, and the Town of Los Gatos. West Valley Stormwater is governed by a Board of Directors with one representative from each member agency.

The City contributes annually based on a cost-sharing formula. The City of Saratoga maintains the financial records and provides accounting services for West Valley Stormwater. Audited financial statements are available from the City of Saratoga.
36

City of Monte Sereno
Notes to Financial Statements
June 30, 2025
NOTE 11 – PARTICIPATION IN JOINT POWERS AUTHORITIES - Continued West Valley Solid Waste Management Authority (West Valley Solid Waste) West Valley Solid Waste manages solid waste and recycling services through regional encroachment agreements and oversees compliance with state diversion and organics mandates. Member agencies include the Cities of Monte Sereno, Saratoga, and Campbell and the Town of Los Gatos. West Valley Solid Waste is governed by a Board of Directors composed of elected officials from each member agency.

The City’s share of costs is based on collected tonnage and population. The City of Campbell maintains the financial records and provides accounting services for West Valley Solid Waste. Audited financial statements are available from the City of Campbell.

Silicon Valley Clean Energy Authority (SVCE)
SVCE is a Community Choice Aggregator that enables its member agencies to pool the electricity demand within their jurisdictions to directly procure or generate electrical power supplies on behalf of their communities, thus allowing the agencies to provide an alternative supply of clean energy for residents at competitive prices with investor-owned utilities. SVCE has thirteen member agencies in Santa Clara County, including the City of Monte Sereno. It is governed by a Board of Directors made up of elected officials from each participating jurisdiction. SVCE provides local control over energy procurement while utilizing Pacific Gas & Electric’s (PG&E) infrastructure for transmission, delivery and billing services. The City’s financial responsibility is limited to power purchase payments and administrative participation fees. SVCE’s customers pay SVCE directly through their PG&E bills (the City does not provide supplementary funding to SVCE).

Audited financial statements are available from Silicon Valley Clean Energy Authority.

Silicon Valley Animal Control Authority (Silicon Valley Animal Control) Silicon Valley Animal Control provides animal control, sheltering, licensing, and public education services. Silicon Valley Animal Control promotes humane animal care and enforces local and state animal control regulations. Member agencies include the Cities of Monte Sereno, Campbell, and Santa Clara. Silicon Valley Animal Control operates a regional animal care center and is governed by a Board of Directors with representatives from each member agency. The City pays an annual fee based on service usage and population.

Audited financial statements are available from Silicon Valley Animal Control Authority.

Santa Clara County Library District Joint Powers Authority (Santa Clara County Library) The Santa Clara County Library District is the governing board, which provides policy direction and governance for the Santa Clara County Library.

Member agencies include the Cities of Campbell, Cupertino, Gilroy, Los Altos, Los Altos Hills, Milpitas, Monte Sereno, Morgan Hill and Saratoga, and the County of Santa Clara.

37

City of Monte Sereno
Notes to Financial Statements
June 30, 2025
NOTE 11 – PARTICIPATION IN JOINT POWERS AUTHORITIES - Continued Santa Clara County Library is primarily funded from a property tax district. Individuals living in the unincorporated area and in the nine cities served by the County Library District have a portion of their property tax designated for the Santa County Library District. In addition to the property tax, district property is also assessed for enhanced service through a Community Facilities District. Voters endorsed the assessment in 1994, 2005 and 2013.

The City does not provide supplementary funding to Santa Clara County Library.

Cities Association of Santa Clara County Joint Powers Authority (Cities Association) The Cities Association was formed on February 1, 2024 for the purpose of promoting cooperation among its 14 members; advocating for positive action; enhancing the quality of life for the residents of Santa Clara County and their individual cities; and encouraging other joint and cooperative endeavors among the public agencies for their mutual benefit.

The 14 member agencies include the Cities of Campbell, Cupertino, Los Altos, Milpitas, Monte Sereno, Morgan Hill, Mountain View, Palo Alto, San Jose, Santa Clara, Saratoga, and Sunnyvale, and the Towns of Los Altos Hills and Los Gatos.

The Cities Association is funded by its members, based on their size and population. In Fiscal 2024, we paid the Cities Association $6,523. No payment was made in Fiscal 2025.

Audited financial statements are available from the Cities Association.

NOTE 12 – NEW GASB PRONOUNCEMENTS
The following Governmental Accounting Standards Board (GASB) pronouncements became effective in Fiscal 2025:

Governmental Accounting Standards Board Statement No. 101 In June 2022, GASB issued Statement No. 101, Compensated Absences. The primary objective of this Statement is to better meet the information needs of financial statement users by updating the recognition and measurement guidance for compensated absences by aligning the recognition and measurement guidance under a unified model and amending certain previously required disclosures. The requirements of this statement are effective for the City's fiscal year ending June 30, 2025.

Governmental Accounting Standards Board Statement No. 102 In December 2023, GASB issued Statement No. 102, Certain Risk Disclosures. The primary objective of this Statement is to provide users of government financial statements with essential information about risks related to a government's vulnerabilities due to certain concentrations or constraints. A concentration is defined as a lack of diversity related to an aspect of a significant inflow of resources or outflow of resources. A constraint is a limitation imposed on a government by an external party or by formal action of the government's highest level of decision-making authority. The requirements of this statement are effective for the City's fiscal year ending June 30, 2025.
38

City of Monte Sereno
Notes to Financial Statements
June 30, 2025
NOTE 12 – NEW GASB PRONOUNCEMENTS (Continued)
The following GASB pronouncements are not effective until July 1, 2025 or later and may be applicable for the City.

Governmental Accounting Standards Board Statement No. 103 In April 2024, GASB issued Statement No. 103, Financial Reporting Model Improvements. The objective of this Statement is to improve key components of the financial reporting model to enhance its effectiveness in providing information that is essential for decision making and assessing a government's accountability. This Statement also addresses certain application issues.

The requirements of this statement are effective for the City's fiscal year ending June 30, 2026.

Governmental Accounting Standards Board Statement No. 104 In September 2024, GASB issued Statement No. 104, Disclosure of Certain Capital Assets. The objective of this Statement is to provide users of government financial statements with essential information about certain types of capital assets. This Statement requires certain types of capital assets to be disclosed separately in the capital assets note disclosures required by Statement 34 and also requires additional disclosures for capital assets held for sale. The requirements of this statement are effective for the City's fiscal year ending June 30, 2026.

Governmental Accounting Standards Board Statement No. 105 In December 2025, the Governmental Accounting Standards Board issued Statement No. 105, Subsequent Events. The objective of this Statement is to improve financial reporting requirements for subsequent events by enhancing consistency in application and providing more useful information to financial statement users. This Statement defines subsequent events and clarifies related recognition and disclosure requirements. The requirements of this Statement are effective for fiscal years beginning after June 15, 2026.
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Required Supplementary Information
June 30, 2025
City of Monte Sereno

CITY OF MONTE SERENO

GENERAL FUND

STATEMENT OF REVENUES, EXPENDITURES

AND CHANGES IN FUND BALANCE

BUDGET AND ACTUAL
FOR THE YEAR ENDED JUNE 30, 2025
Variance with
Budgeted Amounts Final Budget
Positive
Original Final Actual (Negative)

REVENUES
Property taxes $2,897,100 $2,897,100 $2,920,312 $23,212 Sales taxes 8,500 8,500 7,230 (1,270)
Encroachment fees 476,000 476,000 424,381 (51,619)
Real property transfer tax 76,900 76,900 130,639 53,739 Community development 47,443 47,443
License and permits 806,900 806,900 1,011,189 204,289
Fines and penalties 6,600 6,600 (6,600)
Investment earnings 200,000 200,000 206,263 6,263
Intergovernmental/other agencies 18,700 18,700 4,488 (14,212) Other revenue 8,000 8,000 7,705 (295)
Total Revenues 4,498,700 4,498,700 4,759,650 260,950

EXPENDITURES
Current:

General government 3,439,405 3,439,405 3,880,181 (440,776) Community development 33,102 (33,102)
Total Expenditures 3,439,405 3,439,405 3,913,283 (473,878)

EXCESS OF REVENUES
OVER (UNDER) EXPENDITURES 1,059,295 1,059,295 846,367 (212,928) OTHER FINANCING SOURCES (USES) (Note 4)
Transfers (out) (900,000) (900,000)
Total Other Financing Sources (900,000) (900,000)
NET CHANGE IN FUND BALANCE $1,059,295 $1,059,295 (53,633) ($1,112,928) Fund balance at beginning of year 5,982,986
FUND BALANCE AT END OF YEAR $5,929,353
42

CITY OF MONTE SERENO

LAW ENFORCEMENT FUND

STATEMENT OF REVENUES, EXPENDITURES

AND CHANGES IN FUND BALANCE

BUDGET AND ACTUAL
FOR THE YEAR ENDED JUNE 30, 2025
Variance with
Budgeted Amounts Final Budget
Positive
Original Final Actual (Negative)

REVENUES
Property taxes $93,500 $93,500 $189,337 $95,837
Intergovernmental 100,000 100,000 194,664 94,664
Total Revenues 193,500 193,500 384,001 190,501

EXPENDITURES
Current:

General government 81,835 (81,835)
Public safety 1,235,514 1,235,514 1,235,514
Total Expenditures 1,235,514 1,235,514 1,317,349 (81,835)

EXCESS OF REVENUES
OVER EXPENDITURES (1,042,014) (1,042,014) (933,348) 108,666

OTHER FINANCING SOURCES (USES)
Transfers in 900,000 900,000
Total Other Financing Sources 900,000 900,000
NET CHANGE IN FUND BALANCE ($1,042,014) ($1,042,014) (33,348) ($1,008,666) Fund balance at beginning of year (33,841)
FUND BALANCE AT END OF YEAR ($67,189)
43

CITY OF MONTE SERENO

ROADWAY AND STREET FUND

STATEMENT OF REVENUES, EXPENDITURES

AND CHANGES IN FUND BALANCE

BUDGET AND ACTUAL
FOR THE YEAR ENDED JUNE 30, 2025
Variance with
Budgeted Amounts Final Budget
Positive
Original Final Actual (Negative)

REVENUES
Fuel taxes $210,065 $210,065
Investment earnings $6,000 $6,000 7,460 1,460
License and permits 120,565 120,565
Intergovernmental 263,124 263,124
Total Revenues 6,000 6,000 601,214 595,214

EXPENDITURES
Current:

General government 2,410 (2,410)
Public works 57,500 57,500 419,823 (362,323)
Total Expenditures 57,500 57,500 422,233 (364,733)
NET CHANGE IN FUND BALANCE ($51,500) ($51,500) 178,981 $230,481 Fund balances at beginning of year 146,140
FUND BALANCE AT END OF YEAR $325,121
44

CITY OF MONTE SERENO
MISCELLANEOUS PLAN – COST-SHARING MULTIPLE-EMPLOYER DEFINED PENSION PLAN

SCHEDULE OF THE PROPORTIONATE SHARE OF THE NET PENSION LIABILITY/ (ASSET) AS OF JUNE 30, FOR THE LAST TEN FISCAL YEARS
Measurement Date 6/ 6/30/2016 6/30/2015 6/3 6/30/2020 6/30/2019 6/30/2018 30/2017 6/3 6/30/2022 0/2021 6/30/2024 0/2023 Plan's Proportion of the Net Pension Liability (Asset) -0.0456 0.01579% 0.01321% 0.00424% 0.00518% 0.01124% 0.01091% 0.00705% 0.00713% 0.00402% 8% Plan's Proportionate Share of the Net Pension Liability (Asset) $408,50 $513,753 $972,944 $748,563 $341,065 $356,553 $188,003 -$867,343 $666,025 $528,780 7 Plan's Covered Payroll $774,29 $672,548 $673,336 $723,056 $1,369,434 $947,329 $953,625 $806,851 $841,740 $903,345 4 Plan's Proportionate Share of the Net Pension Liability (Asset) as a Percentage of it's Covered Payroll 7 58.54% 52.76% 76.39% 144.50% 103.53% 24.91% 37.64% 19.71% -107.50% 9.12%Plan’s Fiduciary Net Position as a Percentage of the Total Pension Liability 75 75.26% 75.26% 73.31% 74.06% 78.40% 78.08% 76.21% 76.68% 88.29% .10% Miscellaneous Plan
45

CITY OF MONTE SERENO
MISCELLANEOUS PLAN – COST-SHARING MULTIPLE-EMPLOYER DEFINED PENSION PLAN

SCHEDULE OF PENSION CONTRIBUTIONS
AS OF JUNE 30, FOR THE LAST TEN FISCAL YEARS
Miscellaneous Plan
2020 2019 2018 2017 2016 Fiscal Year
Actuarially determined contribution $93,864 $79,188 $59,622 $667,968 $121,561Contributions in relation to the actuarially determined contributions (59,622) (667,968) (121,561) (79,188) (93,864)Contribution deficiency (excess)Covered payroll $673,336 $672,548 $774,294 $903,345 $841,740 Contributions as a percentage of covered payroll 18.05% 99.32% 7.70% 8.77% 11.15% Valuation date: 6/30/2014 6/30/2015 6/30/2016 6/30/2017 6/30/2018 Fiscal Year 2021 2022 2023 2024 2025
Actuarially determined contribution $125,384 $82,134 $78,418 $117,287 $68,691 Contributions in relation to the actuarially determined contributions (813,146) (82,134) (78,418) (117,287) (68,691) Contribution deficiency (excess) ($687,762)
Covered payroll $806,851 $953,625 $947,329 $1,369,434 $1,053,403 Contributions as a percentage of covered payroll 15.54% 8.61% 8.28% 8.56% 6.52% Valuation date: 6/30/2019 6/30/2020 6/30/2021 6/30/2022 6/30/2023 Notes to ScheduleMethods and assumptions used to determine contribution rates:Actuarial cost method Entry age normalAmortization method Level percentage of payroll, closedRemaining amortization period 30 yearsAsset valuation method 5-year smoothed marketInflation 2.30%Salary increases Varies by Entry Age and ServiceInvestment rate of return 6.90%, net of pension plan investment and administrative expenses, including inflation Miscellaneous Plan
46

CITY OF MONTE SERENO

SCHEDULE OF CHANGES IN TOTAL OTHER POST EMPLOYMENT BENEFITS

LIABILITY AND RELATED RATIOS
AS OF JUNE 30, FOR THE LAST TEN FISCAL YEARS *
Measurement Date 2025 2024 2023 2022 2021 2020 2019 2018Total OPEB Liability (TOL)Service Cost $92,038 $94,662 $86,788 $112,123 $139,568 $105,142 $94,841 $97,527Interest on the total OPEB Liability 37,440 33,446 27,368 18,555 29,175 33,454 30,267 25,244 Changes in benefit terms
Differences between expected and ac (1,210) 30,728 (467,951) tual experienceChanges of assumptions (145,248) (36,846) 31,328 (153,791) (102,474) 212,695 49,469 (33,667) Benefit Payments (62,036) (42,560) (39,159) (35,827) (28,152) (14,591) (7,732) (11,211) 77,893 Net change in total OPEB liability (79,016) 48,702 137,053 (58,940) (429,834) 336,700 166,845 613,233 Total OPEB liability - beginning 891,652 842,950 705,897 764,837 1,194,671 857,971 691,126 $691,126 Total OPEB liability - ending (a) $812,636 $891,652 $842,950 $705,897 $764,837 $1,194,671 $857,971 Covered payroll $1,080,459 $1,044,629 $906,889 $957,255 $806,851 $841,740 $903,345 $774,294 TOL as a percentage of covered employee payroll 75.21% 85.36% 92.95% 73.74% 94.79% 141.93% 94.98% 89.26% Notes to Schedule:* Fiscal year 2018 was the first year of implementation.Historical information is required only for measurement periods for which GASB 75 is applicable. Future year's information will be displayed up to 10 years as information becomes available. 47

City of Monte Sereno
Note to Budgetary Information
For the Year Ended June 30, 2025
Budgets are adopted on a basis consistent with accounting principles generally accepted in the United States of America. An annual budget is adopted by the City Council before the fiscal year beginning July

1. As part of the budget process, all City departments submit budget requests for the next fiscal year.

These requests are reviewed, and the City Manager prepares a recommended budget showing estimated revenues and expenditures of the City. The proposed budget available to the public for review and comment, and City Council reviews and discusses the proposed budget. Any new appropriation or appropriation transfer between funds or department requires approval by the City Council. During the fiscal year, the City Manager may propose mid-year changes to the budget, which must be approved by City Council. Expenditures may not legally exceed appropriations at the fund level. The Budgetary Comparison Schedules present both the original adopted and the final budget with all amendments.

The City had the following funds with expenditures in excess of appropriations for the year ended June 30, 2025:

Negative
Budgeted Amount Actual Variance with
Expenditure Final Amount Final Budget
General Fund:

General government $3,439,405 $3,880,181 ($440,776)
Community development 0 33,102 (33,102)
Law Enforcement Fund:

General government 0 81,835 (81,835)
Roadway and Street Fund:

General government 0 2,410 (2,410)
Public works 57,500 419,823 (362,323)
48

Supplementary Information
June 30, 2025
City of Monte Sereno

CITY OF MONTE SERENO

NON-MAJOR GOVERNMENTAL FUNDS

COMBINING BALANCE SHEETS
JUNE 30, 2025
Total
Loma Serena Storm Non-Major
Street Lighting Drainage Public Safety Governmental
Fund Fund Fund Funds
ASSETS
Cash and investments available for operations $8,391 $18,228 $26,619 Accounts receivable $90 90
Total Assets $8,391 $18,228 $90 $26,709

LIABILITIES
Accounts payable $400 $400
Due to other funds 75,658 67,872 143,530
Total Liabilities 76,058 67,872 143,930

FUND BALANCES
Restricted for Storm Drainage Capacity 18,228 18,228
Unassigned (67,667) ($67,782) (135,449)
Total Fund Balance (67,667) 18,228 (67,782) (117,221)
Total Liabilities and Fund Balances $8,391 $18,228 $90 $26,709 50

CITY OF MONTE SERENO

NON-MAJOR GOVERNMENTAL FUNDS

COMBINING STATEMENTS OF REVENUES, EXPENDITURES

AND CHANGES IN FUND BALANCES
FOR THE YEAR ENDED JUNE 30, 2025
Total
Loma Serena Storm Non-Major
Street Lighting Drainage Public Safety Governmental
Fund Fund Fund Funds

REVENUES
Property taxes $2,816 $2,816
Fines and penalties $8,031 8,031
Other revenue $9,168 9,168
Total Revenues 2,816 9,168 8,031 20,015

EXPENDITURES
Current:

Public safety 40,982 40,982
Public works 1,581 11,940 34,831 48,352
Total Expenditures 1,581 11,940 75,813 89,334
NET CHANGE IN FUND BALANCES 1,235 (2,772) (67,782) (69,319) Fund balances (deficits) at beginning of year (68,902) 21,000 (47,902) FUND BALANCES (DEFICITS) AT END OF YEAR ($67,667) $18,228 ($67,782) ($117,221) 51

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INDEPENDENT AUDITOR’S REPORT ON

INTERNAL CONTROL OVER FINANCIAL REPORTING

AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN

AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE

WITH GOVERNMENT AUDITING STANDARDS
To the Honorable Members of the City Council
City of Monte Sereno, 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 basic financial statements of the City of Monte Sereno, California, as of and for the year ended June 30, 2025, and have issued our report thereon dated June 26, 2026.

Report on Internal Control over Financial Reporting
In planning and performing our audit of the financial statements, we considered the City’s internal control over 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 City’s internal control. Accordingly, we do not express an opinion on the effectiveness of the City’s internal control.

A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the City’s 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 and therefore, material weaknesses or significant deficiencies may exist that were not identified. We identified certain deficiencies in internal control that we consider to be material weaknesses as listed on the Schedule of Material Weaknesses included as part of our separately issued Memorandum on Internal Control dated June 26, 2026, which is an integral part of our audit and should be read in conjunction with this report.

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 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. 53

The results of our test disclosed no instance of noncompliance that are required to be reported under Government Auditing Standards.

We have also issued a separate Memorandum on Internal Control dated June 26, 2026, which is an integral part of our audit and should be read in conjunction with this report.

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.

Pleasant Hill, California
June 26, 2026
54

CITY OF MONTE SERENO

REQUIRED COMMUNICATIONS

FOR THE YEAR ENDED
JUNE 30, 2025

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CITY OF MONTE SERENO

REQUIRED COMMUNICATIONS
For the Year Ended June 30, 2025
Table of Contents
Page
Required Communications .................................................................................................................. 1 Significant Audit Matters:

Qualitative Aspects of Accounting Practices ..................................................................... 1 Difficulties Encountered in Performing the Audit ............................................................. 2 Corrected and Uncorrected Misstatements ........................................................................ 2 Disagreements with Management ...................................................................................... 2 Management Representations .............................................................................................. 2 Management Consultations with Other Independent Accountants ................................... 2 Other Audit Findings or Issues ............................................................................................ 2 Other Matters .............................................................................................................................. 3

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REQUIRED COMMUNICATIONS
To the City Council of
the City of Monte Sereno, California
We have audited the basic financial statements of the City of Monte Sereno (City), California, for the year ended June 30, 2025. 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 orally during our discussion with the City Manager on August 20, 2025. Professional standards also require that we communicate to you the following information related to our audit.

Significant Audit Matters
Qualitative Aspects of Accounting Practices
Accounting Policies – Management is responsible for the selection and use of appropriate accounting policies. The significant accounting policies used by the City are described in Note 2 to the financial statements. No new accounting policies were adopted, and the application of existing policies was not changed during the year.

Unusual Transactions, Controversial or Emerging Areas – We noted no transactions entered into by the City 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 – 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. The most sensitive estimates affecting the City’s financial statements were:

Estimated Net Pension Liabilities and Pension-Related Deferred Outflows and Inflows of Resources: Management’s estimate of the net pension liabilities and deferred outflows/inflows of resources are disclosed in Note 6 to the financial statements and are based on accounting valuations determined by the California Public Employees Retirement System, which are based on the experience of the City. We evaluated the key factors and assumptions used to develop the estimates and determined that they are reasonable in relation to the basic financial statements taken as a whole.

Estimated Total OPEB Liabilities and OPEB–Related Deferred Outflows and Inflows of Resources: Management’s estimate of the Total OPEB liabilities and deferred outflows/inflows of resources are disclosed in Note 7 to the financial statements and are based on actuarial studies determined by a consultant, which are based on the experience of the City. We evaluated the key factors and assumptions used to develop the estimate and determined that it is reasonable in relation to the basic financial statements taken as a whole.
1

Estimate of Depreciation: Management’s estimate of the depreciation is based on useful lives determined by management. These lives have been determined by management based on the expected useful life of assets as disclosed in Note 2 to the financial statements. We evaluated the key factors and assumptions used to develop the depreciation estimate and determined that it is reasonable in relation to the basic financial statements taken as a whole.

Disclosures – 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.

Professional standards require us to accumulate all known and likely uncorrected misstatements identified during the audit, other than those that are trivial, and communicate them to the appropriate level of management. We have no such misstatements to report to the City Council.

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 a management representation letter dated June 26, 2026.

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 City’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 City’s auditors. However, these discussions occurred in the normal course of our professional relationship and our responses were not a condition to our retention.
2

Other Matters
We applied certain limited procedures to the required supplementary information that accompanies and supplements the basic financial statements. Our procedures consisted of inquiries of management regarding 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 did not audit the required supplementary information and do not express an opinion or provide any assurance on the required supplementary information.

We were engaged to report on the supplementary information that accompanies the financial statements, but is not required supplementary information. 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.
******
This information is intended solely for the use of City Council and management and is not intended to be, and should not be, used by anyone other than these specified parties.

Pleasant Hill, California
June 26, 2026
3

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CITY OF MONTE SERENO

MEMORANDUM ON INTERNAL CONTROL
FOR THE YEAR ENDED JUNE 30, 2025

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CITY OF MONTE SERENO

MEMORANDUM ON INTERNAL CONTROL
FOR THE YEAR ENDED JUNE 30, 2025
Table of Contents
Page
Memorandum on Internal Control ................................................................................................................... 1 Schedule of Material Weaknesses ........................................................................................................... 3 Schedule of Significant Deficiencies ....................................................................................................... 9 Schedule of Other Matters ..................................................................................................................... 13 Current Status of Prior Year Material Weaknesses ............................................................................... 15 Current Status of Prior Year Significant Deficiencies ........................................................................... 17

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MEMORANDUM ON INTERNAL CONTROL
To the City Council of
the City of Monte Sereno, California
In planning and performing our audit of the basic financial statements of the City of Monte Sereno (City) as of and for the year ended June 30, 2025, in accordance with auditing standards generally accepted in the United States of America, we considered the City’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 City’s internal control. Accordingly, we do not express an opinion on the effectiveness of the City’s internal control.

Our consideration of internal control was for the limited purpose described in the preceding paragraph and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies and, therefore material weaknesses or significant deficiencies may exist that were not identified. In addition, because of inherent limitations in internal control, including the possibility of management override of controls, misstatements due to error or fraud may occur and not be detected by such controls. However, as discussed below, we identified certain deficiencies in internal control that we consider to be material weaknesses and other deficiencies that we consider to be significant deficiencies.

A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the City’s financial statements will not be prevented, or detected and corrected, on a timely basis. We consider the deficiencies in internal control included on the Schedule of Material Weaknesses to be material weaknesses.

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.

We consider the deficiencies in internal control included on the Schedule of Significant Deficiencies to be significant deficiencies.

Included in the Schedule of Other Matters are recommendations not meeting the above definitions that we believe are opportunities for strengthening internal controls and operating efficiency.

Government Auditing Standards require the auditor to perform limited procedures on the City’s response to the findings identified in our audit and described in the accompanying Schedules and Current Status of Prior Year Material Weaknesses. The City’s response was not subjected to the other auditing procedures applied in the audit of the financial statements and, accordingly, we express no opinion on the response. 1

This communication is intended solely for the information and use of management, City Council, others within the organization, and agencies and pass-through entities requiring compliance with Government Auditing Standards, and is not intended to be and should not be used by anyone other than these specified parties.

Pleasant Hill, California
June 26, 2026
2

CITY OF MONTE SERENO

MEMORANDUM ON INTERNAL CONTROL

SCHEDULE OF MATERIAL WEAKNESSES
2025-01: Pervasive Internal Control Weaknesses Show Insufficient Accounting Resources and Management Thereof
Criteria: For the City to have effective internal controls over financial reporting, it must have accounting resources with sufficient competence to process financial transactions, execute accounting duties, maintain financial records and prepare reliable financial statements including budget to actual reporting in accordance with U.S. GAAP, and must be managed appropriately.

Condition: As described in this Schedule of Internal Control Weaknesses, the audit identified numerous and widespread internal control weaknesses across the most fundamental areas of the City’s financial operations. These include a failure to record transactions and perform bank and investment reconciliations, an inability to prepare budgets on a fund basis, and a failure to record prior-year audit adjustments in the general ledger, which is a basic year-end function. The culmination of these issues resulted in delays in basic month-end close procedures and the identification of errors during the financial statement audit process that required material adjustments.

Cause: The pervasive nature of these deficiencies stems from a failure to remediate known issues. The City did not require the development and implementation of basic written policies for critical areas such as journal entries, procurement, or budgeting. Staff were not able to process transactions accurately or timely, and did not prepare any monthly financial reports, much less budget to actual financial reports, for management or City Council.

Effect: The sheer volume and fundamental nature of these control failures create a reasonable possibility that a material misstatement in the City’s financial statements in accordance with U.S. GAAP will not be prevented, or detected and corrected, thereby impairing the City’s ability to produce accurate, reliable, and timely financial information. This lack of competence has led to direct financial consequences, including as a direct result of failed budgetary controls $164,775 in fees for corrected parcel tax bills in Fiscal 2024 and 2025. Additional audit effort was required to ensure that the changes to the draft financial reports were completed accurately resulting in additional audit fees.

Recommendation: The City should establish formal, written policies and procedures to address internal control weaknesses in all critical areas within the City’s accounting department and have competent resources to process financial transactions accurately and consistently with the City’s financial budgets. 2025-02: Audit Adjustments for Fiscal 2024
Criteria: Audit adjustments should be recorded in the general ledger immediately upon completion of the prior year’s audit to ensure the fiscal year is closed property. This allows the opening balances of the new fiscal year to agree with the audited financial statements.

Condition: The general ledger for Fiscal 2025 did not include the audit adjustments provided by auditors upon completion of the Fiscal 2024 audit as those entries were not made. There was an Excel spreadsheet that included the entries from the audit adjustments on the July 1, 2024 opening balances.

Cause: Staff closed the general ledger at June 30, 2024 without making the audit adjustments and the audit adjustments were not recorded in the general ledger.
3

CITY OF MONTE SERENO

MEMORANDUM ON INTERNAL CONTROL

SCHEDULE OF MATERIAL WEAKNESSES
2025-02: Audit Adjustments for Fiscal 2024 (Continued)
Effect: The failure to record the Fiscal 2024 audit adjustments created extra work and time to migrate from the Sage financial system to the new Tyler financial system and caused additional audit effort. Accounting records should include all entries for each fiscal year.

Recommendation: The City must record all audit adjustments for Fiscal 2024 and implement a formal procedure to immediately close the books, ensuring that the opening balances for the subsequent year agree to the audited financial statements.

Current Status: Corrected
2025-03: Timely Transaction Recording and Reconciliation Criteria: To ensure all transactions are recorded and to form a reliable basis for financial reporting, financial transactions should be recorded in the general ledger in a timely manner, which then allows for the reconciliation of bank and investment accounts.

Condition: During the audit, we noted that bank and investment accounts were not reconciled because financial transactions were not being recorded in the general ledger in a timely manner.

Cause: City staff did not record transactions in the general ledger in a timely manner.

Effect: The recording of financial transactions is a fundamental basis for internal control. A key internal control, the monthly reconciliation of bank and investment accounts, could not be performed.

Recommendation: The City should establish and follow formal month-end closing policies and procedures to ensure all transactions are recorded in the general ledger on a timely basis, which will permit the reconciliation of all bank and investment accounts.
2025-04: Written Policies and Procedures for Journal Entries Criteria: Journal entries should be prepared with appropriate supporting documentation and be subject to review and approval to identify potential errors in amount or classification. Entries must be posted to the correct period to ensure financial reporting accuracy.

Condition: We observed that the City does not have written policies and procedures for the creation, review and posting of journal entries.

Cause: Written policies and procedures were not prepared, even with a full-time Director of Finance.

Additionally, the former City Manager did not require written policies or procedures related to finance.

Effect: The lack of documented procedures exposes the City to significant risks, including inaccurate financial reporting and unauthorized entries. Without these rules, employees could create inappropriate entries to misappropriate assets, such as moving funds to a fraudulent vendor account. It can lead to material misstatements by misclassifying revenues or misstating assets and liabilities, thereby providing a false picture of the City’s financial condition and health.

Recommendation: The City should establish formal, written policies and procedures for journal entries. 4

CITY OF MONTE SERENO

MEMORANDUM ON INTERNAL CONTROL

SCHEDULE OF MATERIAL WEAKNESSES
2025-05: Journal Entry Descriptions
Criteria: A critical element of internal control is a clear and complete audit trail. Journal entries should have standardized, descriptive explanations that allow a reviewer to understand the transaction’s business purpose and propriety without extensive research, ensuring transparency and reliability as required by GASB.

Condition: Journal entry descriptions were observed to be inconsistent, particularly when different staff created and posted them.

Cause: The City lacks a defined standard for journal entry descriptions, forcing staff to use their own judgment, which leads to variation in quality. This was compounded by a lack of staff understanding regarding the importance of a permanent audit trail. Also, it appears that the former City Manager did not require the development of standard journal entries.

Effect: Inconsistent descriptions introduce ambiguity and inefficiency that can conceal errors and complicate financial management. It hinders effective review, making it more likely for inappropriate entries to go unnoticed and slowing the month-end closing process. It also makes it more difficult to investigate potential fraud, as vague descriptions can be used to hide unauthorized transactions. This condition weakens the overall internal control environment and hinders financial analysis and oversight.

Recommendation: The City should develop and require the use of standard journal entry descriptions with training provided to all staff entering data into the financial system. 2025-06: Timeliness for Completion of Audit
Criteria: Well-managed organizations should develop a plan to ensure that adequate resources will remain available in the event of employee departures and the potential impact of unexpected events. Part of that is ensuring there are resources available to be utilized on short notice to fill gaps in key positions, especially in the Finance Department. These resources need to be in place throughout the fiscal year to ensure accounting processes and procedures continue and allow time for the analysis of account balances and activities.

Condition: The City’s basic financial statements for the year ended June 30, 2025 were not completed until June 2026.

Cause: Due to the City’s engagement of contractor supplied accounting resources without sufficient competence to record financial transactions, execute accounting duties and maintain financial records, the City was not able to prepare and complete recording financial activities and the financial reports for the audit timely.

Effect: As a result, there were delays in the completion of the financial statements under audit, which increased the audit effort substantially and caused the City to miss financial reporting filing deadlines.

Recommendation: The City should have staff and/or other resources to ensure that the financial transactions are processed properly, accurately and timely at all times. 5

CITY OF MONTE SERENO

MEMORANDUM ON INTERNAL CONTROL

SCHEDULE OF MATERIAL WEAKNESSES
2025-07: Budgets Not Prepared on a Proper Fund Basis
Criteria: For internal control purposes, the City’s budgets must be prepared on a fund basis, using the same accounting principles as the fund itself.

Condition: During our audit, we had to reconcile from the budgets prepared by the City to each of the funds reported on.

Cause: City staff did not follow standard fund accounting procedures, and no documentation was maintained on how to prepare the budgets.

Effect: Meaningful comparison of actual results to budget could not, and was not, completed.

Recommendation: The City should prepare its budgets for each individual fund. 2025-08: Errors in Parcel Taxes for Police Services
Criteria: A fundamental internal control is the preparation of an accurate budget for recurring and predictable financial items. Comparing actual results to the budget allows for timely investigation of variances. The City’s parcel tax revenue is highly stable and predictable, making it a straightforward item to budget and monitor.

Condition: The City incorrectly requested its parcel tax from the County Assessor for two consecutive years. This error required the County to issue 1,276 corrected tax bills. The County charged the City $65.00 for each correction, resulting in total fees of $164,775 over the two years.

Cause: Staff did not provide appropriate review and approval of the submission to the County Assessor which was compounded by a failure to perform budget-to-actual variance analysis, which would have promptly identified the significant revenue shortfall. Although staff made the clerical error, the former City Manager was responsible for internal controls that would identify the error.

Effect: This internal control failure resulted in a direct financial loss to the City of $164,775 in unnecessary correction fees. Since the error was not detected and resolved in Fiscal 2024, the same costly mistake was repeated in Fiscal 2025, indicating a systemic breakdown in a basic budgetary control.

Recommendation: The City should implement procedures to ensure budget accuracy, particularly for stable revenue sources. Furthermore, management must enforce a requirement to perform monthly budgetto-actual variance analysis and to investigate and resolve significant discrepancies in a timely manner. 2025-09: Preparation and Presentation of Monthly Financial Results Criteria: Timely financial results should be prepared and presented to City Council for oversight. No monthly financial reports were provided to City Council during Fiscal 2025.

Condition: We noted that monthly financial results were not submitted to City Council. 6

CITY OF MONTE SERENO

MEMORANDUM ON INTERNAL CONTROL

SCHEDULE OF MATERIAL WEAKNESSES
2025-09: Preparation and Presentation of Monthly Financial Results (Continued) Cause: Staff did not have any desk procedures, monthly close procedures, and did not use the financial reporting software to process transactions accurately or timely.

Effect: Without monthly financial results, City Council is not aware of the financial results of the City.

This failure creates an opportunity for financial fraud to go undetected. Fundamental financial reporting combined with a lack of budgets (see 2025-07) is the root cause of many of the material weaknesses observed in Fiscal 2025.

Recommendation: The City should prepare timely financial information for management, and present that financial information to City Council for their review and acceptance. 7

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CITY OF MONTE SERENO

MEMORANDUM ON INTERNAL CONTROL

SCHEDULE OF SIGNIFICANT DEFICIENCIES
2025-10: Warrant Lists
Criteria: City Council reviews and approves warrant lists prior to the City Manager signing checks. The warrant lists presented to City Council are prepared in Excel and not prepared by the City’s financial software.

Condition: Staff does not use functionality within the City’s financial reporting software to prepare the warrant lists. Instead, staff use Excel spreadsheets to prepare and present warrant lists to City Council.

Cause: Staff does not use the functionality within the City’s financial reporting software to prepare the warrant lists.

Effect: While the Excel-based warrant lists may be accurate, the City is bypassing a fundamental internal control that could prevent unauthorized payments to be made.

Recommendation: All warrant lists should be prepared by the financial accounting software used by the City.
2025-11: Procurement
Criteria: All purchases made by staff should follow the City’s procurement regulations. These regulations require obtaining the W-9 and issuing 1099 as needed.

Condition: We observed purchase of goods and services were made that did not follow the City’s procurement regulations. We were informed that the City is not consistent with obtaining the W-9 and issuing 1099s to all vendors.

Cause: Staff chose not to follow the City’s procurement regulations and there was no management control to require such procurement regulations to be followed.

Effect: Failure to comply with procurement regulations could result in financial losses for the City and noncompliance with IRS rules regarding 1099s.

Recommendation: The City should develop, implement and enforce written procurement policies and procedures.
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CITY OF MONTE SERENO

MEMORANDUM ON INTERNAL CONTROL

SCHEDULE OF OTHER MATTERS
2025-09: NEW GASB PRONOUNCEMENTS OR PRONOUNCEMENTS NOT YET EFFECTIVE The following comment represents new pronouncements taking affect in the next few years. We have cited them here to keep you informed of developments:

EFFECTIVE FISCAL YEAR 2025/26:

GASB 103 – Financial Reporting Model Improvements
The objective of this Statement is to improve key components of the financial reporting model to enhance its effectiveness in providing information that is essential for decision making and assessing a government’s accountability. This Statement also addresses certain application issues.

Management’s Discussion and Analysis – This Statement continues the requirement that the basic financial statements be preceded by management’s discussion and analysis (MD&A), which is presented as required supplementary information (RSI). MD&A provides an objective and easily readable analysis of the government’s financial activities based on currently known facts, decisions, or conditions and presents comparisons between the current year and the prior year. This Statement requires that the information presented in MD&A be limited to the related topics discussed in five sections: (1) Overview of the Financial Statements, (2) Financial Summary, (3) Detailed Analyses, (4) Significant Capital Asset and Long-Term Financing Activity, and (5) Currently Known Facts, Decisions, or Conditions. Furthermore, this Statement stresses that the detailed analyses should explain why balances and results of operations changed rather than simply presenting the amounts or percentages by which they changed. This Statement emphasizes that the analysis provided in MD&A should avoid unnecessary duplication by not repeating explanations that may be relevant to multiple sections and that “boilerplate” discussions should be avoided by presenting only the most relevant information, focused on the primary government. In addition, this Statement continues the requirement that information included in MD&A distinguish between that of the primary government and its discretely presented component units.

Unusual or Infrequent Items – This Statement describes unusual or infrequent items as transactions and other events that are either unusual in nature or infrequent in occurrence. Furthermore, governments are required to display the inflows and outflows related to each unusual or infrequent item separately as the last presented flow(s) of resources prior to the net change in resource flows in the government-wide, governmental fund, and proprietary fund statements of resource flows.

Presentation of the Proprietary Fund Statement of Revenues, Expenses, and Changes in Fund Net Position – This Statement requires that the proprietary fund statement of revenues, expenses, and changes in fund net position continue to distinguish between operating and nonoperating revenues and expenses.

Operating revenues and expenses are defined as revenues and expenses other than nonoperating revenues and expenses. Nonoperating revenues and expenses are defined as (1) subsidies received and provided, (2) contributions to permanent and term endowments, (3) revenues and expenses related to financing, (4) resources from the disposal of capital assets and inventory, and (5) investment income and expenses. 11

CITY OF MONTE SERENO

MEMORANDUM ON INTERNAL CONTROL

SCHEDULE OF OTHER MATTERS
GASB 103 – Financial Reporting Model Improvements (Continued) In addition to the subtotals currently required in a proprietary fund statement of revenues, expenses, and changes in fund net position, this Statement requires that a subtotal for operating income (loss) and noncapital subsidies be presented before reporting other nonoperating revenues and expenses. Subsidies are defined as (1) resources received from another party or fund (a) for which the proprietary fund does not provide goods and services to the other party or fund and (b) that directly or indirectly keep the proprietary fund’s current or future fees and charges lower than they would be otherwise, (2) resources provided to another party or fund (a) for which the other party or fund does not provide goods and services to the proprietary fund and (b) that are recoverable through the proprietary fund’s current or future pricing policies, and (3) all other transfers.

Budgetary Comparison Information – This Statement requires governments to present budgetary comparison information using a single method of communication—RSI. Governments also are required to present (1) variances between original and final budget amounts and (2) variances between final budget and actual amounts. An explanation of significant variances is required to be presented in notes to RSI.

How the Changes in This Statement Will Improve Financial Reporting The requirements for MD&A will improve the quality of the analysis of changes from the prior year, which will enhance the relevance of that information. They also will provide clarity regarding what information should be presented in MD&A.

The requirements for the separate presentation of unusual or infrequent items will provide clarity regarding which items should be reported separately from other inflows and outflows of resources.

The definitions of operating revenues and expenses and of nonoperating revenues and expenses will replace accounting policies that vary from government to government, thereby improving comparability. The addition of a subtotal for operating income (loss) and noncapital subsidies will improve the relevance of information provided in the proprietary fund statement of revenues, expenses, and changes in fund net position.

The requirement for presentation of major component unit information will improve comparability.

The requirement that budgetary comparison information be presented as RSI will improve comparability, and the inclusion of the specified variances and the explanations of significant variances will provide more useful information for making decisions and assessing accountability. 12

CITY OF MONTE SERENO

MEMORANDUM ON INTERNAL CONTROL

SCHEDULE OF OTHER MATTERS
EFFECTIVE FISCAL YEAR 2026/27:

GASB 104 – Disclosure of Certain Capital Assets
State and local governments are required to provide detailed information about capital assets in notes to financial statements. GASB Statement No. 34, Basic Financial Statements—and Management’s Discussion and Analysis—for State and Local Governments, requires certain information regarding capital assets to be presented by major class. The objective of this Statement is to provide users of government financial statements with essential information about certain types of capital assets.

This Statement requires certain types of capital assets to be disclosed separately in the capital assets note disclosures required by Statement 34. Lease assets recognized in accordance with GASB Statement No. 87, Leases, and intangible right-to-use assets recognized in accordance with GASB Statement No. 94, Public-Private and Public-Public Partnerships and Availability Payment Arrangements, should be disclosed separately by major class of underlying asset in the capital as-sets note disclosures. Subscription assets recognized in accordance with GASB Statement No. 96, Subscription-Based Information Technology Arrangements, also should be separately disclosed. In addition, this Statement requires intangible assets other than those three types to be disclosed separately by major class.

This Statement also requires additional disclosures for capital assets held for sale. A capital asset is a capital asset held for sale if (a) the government has decided to pursue the sale of the capital asset and (b) it is probable that the sale will be finalized within one year of the financial statement date. Governments should consider relevant factors to evaluate the likelihood of the capital asset being sold within the established time frame. This Statement requires that capital assets held for sale be evaluated each reporting period.

Governments should disclose (1) the ending balance of capital assets held for sale, with separate disclosure for historical cost and accumulated depreciation by major class of asset, and (2) the carrying amount of debt for which the capital assets held for sale are pledged as collateral for each major class of asset.

How the Changes in This Statement Will Improve Financial Reporting The requirements of this Statement will improve financial reporting by providing users of financial statements with essential information about certain types of capital assets in order to make informed decisions and assess accountability. Additionally, the disclosure requirements will im-prove consistency and comparability between governments.
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CITY OF MONTE SERENO

MEMORANDUM ON INTERNAL CONTROL

CURRENT STATUS OF PRIOR YEAR MATERIAL WEAKNESSES
2024-01: Pervasive Internal Control Weaknesses Show Insufficient Accounting Resources and Management Thereof
Criteria: For the City to have effective internal controls over financial reporting, it must have accounting resources with sufficient competence to execute accounting duties, maintain financial records and prepare reliable financial statements in accordance with U.S. GAAP, and must be managed appropriately.

Condition: As described in this Schedule of Internal Control Weaknesses, the audit identified numerous and widespread internal control weaknesses across the most fundamental areas of the City’s financial operations. These include a failure to record transactions and perform bank and investment reconciliations, an inability to prepare budgets on a fund basis, and a failure to record prior-year audit adjustments, which is a basic year-end function. The culmination of these issues resulted in delays in basic month-end close procedures and the identification of errors during the financial statement audit process that required material adjustments.

Cause: The pervasive nature of these deficiencies stems from a failure to remediate known issues. The City did not require the development and implementation of basic written policies for critical areas such as journal entries, procurement, or budgeting. Further, the requirement to implement GASB 96 was detailed in prior internal control reports yet staff chose not to allocate time or effort to address it.

Effect: The sheer volume and fundamental nature of these control failures create a reasonable possibility that a material misstatement in the City’s financial statements in accordance with U.S. GAAP will not be prevented, or detected and corrected, thereby impairing the City’s ability to produce accurate, reliable, and timely financial information. This lack of competence has led to direct financial consequences, including as a direct result of failed budgetary controls $164,775 in fees for corrected parcel tax bills in Fiscal 2024 and 2025.

Recommendation: The City should establish formal, written policies and procedures to address internal control weaknesses in all critical areas within the City’s accounting department.

Current Status: See MOIC 2025-01
2024-02: Audit Adjustments for Fiscal 2023
Criteria: Audit adjustments should be recorded in the general ledger immediately upon completion of the prior year’s audit to ensure the fiscal year is properly closed. This allows the opening balances of the new fiscal year to agree with the audited financial statements.

Condition: Information provided by City staff for the Fiscal Year 2024 audit did not include the audit adjustments provided by auditors upon completion of the Fiscal Year 2023 audit.

Cause: Staff asked for clarification and confirmation of the audit adjustments and ultimately did not record the adjustments in the general ledger.

Effect: The failure to record the Fiscal Year 2023 audit adjustments prevented the accurate preparation of financial information for Fiscal Year 2024.
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CITY OF MONTE SERENO

MEMORANDUM ON INTERNAL CONTROL

CURRENT STATUS PRIOR YEAR SIGNIFICANT DEFICIENCIES
2024-02: Audit Adjustments for Fiscal 2023 (Continued)
Recommendation: The City must record all audit adjustments for Fiscal 2024 and implement a formal procedure to immediately close the books, ensuring that the opening balances for the subsequent year agree to the audited financial statements.

Current Status: See MOIC 2025-02
2024-03: Timely Transaction Recording and Reconciliation Criteria: To ensure all transactions are recorded and to form a reliable basis for financial reporting, financial transactions should be recorded in the general ledger in a timely manner, which then allows for the reconciliation of bank and investment accounts.

Condition: During the audit, we noted that bank and investment accounts were not reconciled because financial transactions were not being recorded in the general ledger.

Cause: City staff did not record transactions in the general ledger on a timely basis.

Effect: The recording of financial transactions is a fundamental basis for internal control. A key internal control, the monthly reconciliation of bank and investment accounts, could not be performed.

Recommendation: The City should establish and follow formal month-end closing policies and procedures to ensure all transactions are recorded in the general ledger on a timely basis, which will permit the reconciliation of all bank and investment accounts.

Current Status: See MOIC 2025-03
2024-04: Written Policies and Procedures for Journal Entries Criteria: Journal entries should be prepared with appropriate supporting documentation and be subject to review and approval to identify potential errors in amount or classification. Entries must be posted to the correct period to ensure financial reporting accuracy.

Condition: We observed that the City does not have written policies and procedures for the creation, review and posting of journal entries.

Cause: Written policies and procedures were not prepared, even with a full-time Director of Finance.

Additionally, the former City Manager did not require written policies or procedures related to finance.

Effect: The lack of documented procedures exposes the City to significant risks, including inaccurate financial reporting and unauthorized entries. Without these rules, employees could create inappropriate entries to misappropriate assets, such as moving funds to a fraudulent vendor account. It can lead to material misstatements by misclassifying revenues or misstating assets and liabilities, thereby providing a false picture of the City’s financial condition and health.

Recommendation: The City should establish formal, written policies and procedures for journal entries.

Current Status: See MOIC 2025-04
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CITY OF MONTE SERENO

MEMORANDUM ON INTERNAL CONTROL

CURRENT STATUS PRIOR YEAR SIGNIFICANT DEFICIENCIES
2024-05: Journal Entry Descriptions
Criteria: A critical element of internal control is a clear and complete audit trail. Journal entries should have standardized, descriptive explanations that allow a reviewer to understand the transaction’s business purpose and propriety without extensive research, ensuring transparency and reliability as required by GASB.

Condition: Journal entry descriptions were observed to be inconsistent, particularly when different staff created and posted them.

Cause: The City lacks a defined standard for journal entry descriptions, forcing staff to use their own judgment, which leads to variation in quality. This was compounded by a lack of staff understanding regarding the importance of a permanent audit trail. Also, it appears that the former City Manager did not require the development of standard journal entries.

Effect: Inconsistent descriptions introduce ambiguity and inefficiency that can conceal errors and complicate financial management. It hinders effective review, making it more likely for inappropriate entries to go unnoticed and slowing the month-end closing process. It also makes it more difficult to investigate potential fraud, as vague descriptions can be used to hide unauthorized transactions. This condition weakens the overall internal control environment and hinders financial analysis and oversight.

Recommendation: The City should develop and require the use of standard journal entry descriptions.

Current Status: See MOIC 2025-05
2024-06: Timeliness for Completion of Audit
Criteria: Well-managed organizations should develop a plan to ensure that adequate resources will remain available in the event of employee departures and the potential impact of unexpected events. Part of that is ensuring there are resources available to be utilized on short notice to fill gaps in key positions, especially in the Finance Department. These resources need to be in place throughout the fiscal year to ensure accounting processes and procedures continue and allow time for the analysis of account balances and activities.

Condition: The City’s basic financial statements for the year ended June 30, 2024 were not completed until July 2025.

Cause: Due to the City’s staff turnover, the City could not prepare and complete recording financial activities for the audit timely.

Effect: As a result, there were significant delays in the completion of the audit, which increases the risk that errors or misstatements may go undetected by staff and corrections may not be made in a timely manner. Audit effort was substantially increased due to the delay and coordination.

Recommendation: The City should identify staff and other resources for backup plans to ensure that the financial data is processed properly and timely during staffing transitions and unexpected events.

Current Status: See MOIC 2025-06
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CITY OF MONTE SERENO

MEMORANDUM ON INTERNAL CONTROL

CURRENT STATUS PRIOR YEAR SIGNIFICANT DEFICIENCIES
2024-07: Budgets Not Prepared on a Proper Fund Basis
Criteria: For internal control purposes, the City’s budgets must be prepared on a fund basis, using the same accounting principles as the fund itself.

Condition: During our audit, we had to reconcile from the budgets prepared by the City to each of the funds reported on.

Cause: City staff did not follow standard fund accounting procedures, and no documentation was maintained on how to prepare the budgets.

Effect: Meaningful comparison of actual results to budget could not, and was not, completed.

Recommendation: The City should prepare its budgets for each individual fund.

Current Status: See MOIC 2025-07
2024-08: Errors in Parcel Taxes for Police Services
Criteria: A fundamental internal control is the preparation of an accurate budget for recurring and predictable financial items. Comparing actual results to the budget allows for timely investigation of variances. The City’s parcel tax revenue is highly stable and predictable, making it a straightforward item to budget and monitor.

Condition: The City incorrectly requested its parcel tax from the County Assessor for two consecutive years. This error required the County to issue 1,259 corrected tax bills in Fiscal 2024 and 1,276 in Fiscal 2025. The County charged the City $65.00 for each correction, resulting in total fees of $164,775 over the two years.

Cause: Staff did not provide appropriate review and approval of the submission to the County Assessor which was compounded by a failure to perform budget-to-actual variance analysis, which would have promptly identified the significant revenue shortfall. Although staff made the clerical error, the former City Manager was responsible for internal controls that would identify the error.

Effect: This internal control failure resulted in a direct financial loss to the City of $164,775 in unnecessary correction fees. Since the error was not detected and resolved in Fiscal 2024, the same costly mistake was repeated in Fiscal 2025, indicating a systemic breakdown in a basic budgetary control.

Recommendation: The City should implement procedures to ensure budget accuracy, particularly for stable revenue sources. Furthermore, management must enforce a requirement to perform monthly budgetto-actual variance analysis and to investigate and resolve significant discrepancies in a timely manner.

Current Status: See MOIC 2025-08
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CITY OF MONTE SERENO

MEMORANDUM ON INTERNAL CONTROL

CURRENT STATUS OF PRIOR YEAR SIGNIFICANT DEFICIENCIES
2024-09: Preparation and Presentation of Monthly Financial Results Criteria: Timely financial results should be prepared and presented to City Council for oversight. The most recent financial report for the month ended May 31, 2024, was submitted to City Council for their meeting on August 20, 2024.

Condition: We noted that monthly financial results were not submitted to City Council.

Cause: Staff did not have any desk procedures, monthly close procedures, and did not use the financial reporting software to process transactions.

Effect: Without monthly financial results, City Council is not aware of the financial results of the City.

This failure creates an opportunity for financial fraud to go undetected.

Recommendation: The City should prepare timely financial information for management, and present that financial information to City Council for their review and acceptance.

Current Status: See MOIC 2025-09
2024-10: Warrant Lists
Criteria: City Council reviews and approves warrant lists prior to the City Manager signing checks. The warrant lists presented to City Council are prepared in Excel and not prepared by the City’s financial software.

Condition: Staff does not use functionality within the City’s financial reporting software to prepare the warrant lists. Instead, staff use Excel spreadsheets to prepare and present warrant lists to City Council.

Cause: Staff does not use the functionality within the City’s financial reporting software to prepare the warrant lists.

Effect: While the Excel-based warrant lists may be accurate, the City is bypassing a fundamental internal control that could prevent unauthorized payments to be made.

Recommendation: All warrant lists should be prepared by the financial accounting software used by the City.

Current Status: See MOIC 2025-10
2024-11: Procurement
Criteria: All purchases made by staff should follow the City’s procurement regulations.

Condition: We observed purchase of goods and services were made that did not follow the City’s procurement regulations.

Cause: Staff chose not to follow the City’s procurement regulations and there was no management control to require such procurement regulations to be followed. 20

CITY OF MONTE SERENO

MEMORANDUM ON INTERNAL CONTROL

CURRENT STATUS PRIOR YEAR SIGNIFICANT DEFICIENCIES
2024-11: Procurement (Continued)
Effect: Failure to comply with procurement regulations could result in financial losses for the City.

Recommendation: The City should develop, implement and enforce written procurement policies and procedures.

Current Status: See MOIC 2025-11
2024-12: Subscription-Based Information Technology Arrangements Criteria: Generally accepted accounting principles require governments with subscription-based information technology arrangements (SBITAs) to follow GASB 96.

Condition: The City has a multiple SBITAs but has not accounted for them as required by GASB 96. In our report to the City for Fiscal 2023, we included detailed information on GASB 96.

Cause: Staff did not allocate time or effort to understand, analyze or document the potential impact of SBITAs on the City’s financial statements.

Effect: While the amounts may not be material in any one year, the cumulative impact is increasing. With the new cloud-based financial accounting software being implemented, this could cause a material error in Fiscal 2025.

Recommendation: The City should classify its software subscriptions in a separate account, and then analyze its software subscriptions to ensure compliance with GASB 96.

Current Status: Corrected
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INDEPENDENT ACCOUNTANT’S REPORT ON

APPLYING AGREED UPON PROCEDURES FOR
COMPLIANCE WITH THE PROPOSITION 111
2024-2025 APPROPRIATIONS LIMIT INCREMENT
Honorable Mayor and Members of the City Council
City of Monte Sereno, California
We have performed the procedures enumerated below on the Appropriations Limit Worksheet (Worksheet) of the City of Monte Sereno, California, for the year ended June 30, 2025. The City’s management is responsible for the Worksheet.

The City has agreed to and acknowledged that the procedures performed are appropriate to meet the intended purpose of these procedures, which were suggested by the League of California Cities and presented in their Article XIIIB Appropriations Limitation Uniform Guidelines, were performed solely to assist you in meeting the requirements of Section 1.5 of Article XIIIB of the California Constitution. This report may not be suitable for any other purpose. The procedures performed may not address all the items of interest to a user of this report and may not meet the needs of all users of this report and, as such, users are responsible for determining whether the procedures performed are appropriate for their purposes.

The procedures and associated findings were as follows:

A. We obtained the Worksheet and determined that the 2024-2025 Appropriations Limit of $8,928,698 and annual adjustment factors were adopted by Resolution of the City Council. We also determined that the population and inflation options were selected by a recorded vote of the City Council.

B. We recomputed the 2024-2025 Appropriations Limit by multiplying the 2023-2024 Prior Year Appropriations Limit by the Total Growth Factor. We recomputed the Total Growth Factor by multiplying the population option by the inflation option.

C. For the Worksheet, we agreed the Per Capita Income Factor and City Population Factor to California State Department of Finance Worksheets.

We were engaged by the City to perform this agreed-upon procedures engagement and conducted our engagement in accordance with attestation standards established by the American Institute of Certified Public Accountants. We were not engaged to and did not conduct an examination or review engagement, the objective of which would be the expression of an opinion or conclusion, respectively, on the Worksheet.

Accordingly, we do not express such an opinion or conclusion. Had we performed additional procedures, other matters might have come to our attention that would have been reported to you.

We are required to be independent of the City and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements related to our agreed-upon procedures engagement.

This report is intended solely for the information and use of management and the City Council and is not intended to be and should not be used by anyone other than those specified parties; however, this restriction is not intended to limit the distribution of this report, which is a matter of public record.

Pleasant Hill, California
December 15, 2025