ATTACHMENT B
Auditor’s Required Communication to City Council
CITY OF OAKLAND
Report to Those Charged With Governance
For the Year Ended June 30, 2025
December 30, 2025
Honorable Mayor and Members of the City Council
City of Oakland, California
We are pleased to present this r eport related to our audit of the basic financial statements of the City of Oakland, California (City) as of and for the year ended June 30 , 2025. This report summarizes certain matters required by professional standards to be communicated t o you in your oversight responsibility for the City’s financial reporting process.
In addition to the City’s basic financial statements, we audit and separately report on the following financial statements as of and for the y ear ended June 30, 2025. These entities and programs are included in the City’s basic financial statements:
Oakland Redevelopment Successor Agency; and
Child Care and Development Programs;
We also audit the financial stat ements of the Oakland Police an d Fire Retirement System and the Port of Oakland. We issued separate communication reports to the respective board of the entities.
This report is intended solely for the information and use of the Mayor, City Council and management, and is not intended to be, and should not be, used by anyone other than these specified parties. It will be our pleasure to respond to any questions you have about this report. We appreciate the opportunity to continue to be of service to the City.
Walnut Creek, California
www.mgocpa.com Macias Gini & O’Connell LLP
2121 N. California Boulevard, Suite 750
Walnut Creek, CA 94596
TABLE OF CONTENTS
Required Communications 1
Exhibits
Exhibit A—Recent Accounting Pronouncements 8
1 REQUIRED COMMUNICATIONS
Auditing standards generally accepted in the United States of A merica (AU-C 260, The Auditor’s Communication With Those Charged With Governance ) require the auditor to promote effective two-way communication between the auditor and those charged with governance. Consistent with this requirement, the following summarizes our responsibilities regarding the fin ancial statement audits as well as observations arising from our audits that are significant and r elevant to your responsibility to oversee the financial and related compliance reporting process.
Our Responsibilities With Regard to the Financial Statement Audits Our responsibilities under auditing standards generally accepte d in the United States of America and Government Auditing Standards have been described to you in our engagement letter dated July 1, 2025.
Our audit of the City’s financial statements does not relieve management or those charged with governance of their responsibilities, which are also described in that letter.
Overview of the Planned Scope and Timing of the Financial Statement Audits We conducted our audits consistent with the planned scope and t iming in our engagement letter dated July 1, 2025.
Accounting Policies and Practices
Preferability of Accounting Policies and Practices
Under accounting principles generally accepted in the United States of America, in certain circumstances, management may select among a lternative accounting practices. I n our view, in such circumstances, management has selected the preferable accounting practice.
Adoption of, or Change in, Accounting Policies
Management has the ultimate responsibility for the appropriaten ess of the accounting policies used by the City. A summary of the significant policies adopted by the Cit y is included in Note I to the financial statements. As described in Note I.E. to the financial stateme nts, the City implemented Governmental Accounting Standards Board (GASB) Statement No. 101, Compensated Absences, and GASB Statement No. 102, Certain Risk Disclosures . The implementation of GASB Statement No. 101 resulted in the restatement of the beginning net position of the governmental activities of $11.5 million as detailed at Note I.G to the financial statements. The implementation of GASB Statement No. 102 did not have a significant impact on the City’s financial statements for the year ended June 30, 2025. The City also restated the fund balance of the General Fund and the beginning net position of t he governmental activities to correct an overstatement of accounts payable and other current liabilities of $199.9 million as detailed at Note I.G to the financial statements.
Significant Accounting Policies
We did not identify any significant accounting policies in controversial or emerging areas for which there is a lack of authoritative guidance or consensus.
Significant Unusual Transactions
We did not identify any significant unusual transactions.
2 Management’s Judgments and Accounting Estimates
Accounting estimates are an inte gral part of the preparation of financial statements and are based upon management’s current judgment. The process used by management encompasses their knowledge and experience about past and current events, and certain assumptio ns about future events. You may wish to monitor throughout the year the process used to determine and record these accounting estimates.
The following is summary information about the process used by management in formulating particularly sensitive accounting estimates and about our conclusions regarding the reasonableness of those estimates:
Significant Accounting Estimates
Measurement of
investments at fair value
The City’s investments are accounted for in accordance with the provisions of GASB Statement No. 72, Fair Value Measurement and Application, and accordingly, its fair value measurements are categorized within the fair value hierarchy established by the standard.
The following levels indicate the hierarchy of inputs used to m easure fair value and the primary valuation methodologies used for fin ancial instruments measured at fair value on a recurring basis:
o Level 1 – Investments whose values are based on quoted prices (unadjusted) for identical assets in active markets that a government can access at the measurement date.
o Level 2 – Investments whose values are based on inputs – other than quoted prices including prices included within level 1 – that are observable for an asset, either directly or indirectly.
o Level 3 – Investments whose values are based on
unobservable inputs for an asset and may require a degree of professional judgment.
MGO compared investment values from quoted market information and using pricing applications and models obtained from the custodian bank, fiscal agents or other sources and determined the estimates wer e reasonable.
Estimated unbilled sewer
service revenue
Estimated unbilled sewer service revenue are based on an evalua tion of the sewer service reports from the East Bay Municipal Utility D istrict, cash flows, monthly billing cycles, and historical billings.
MGO evaluated the methodologies and assumptions used in estimat ing the revenue and performed analyti cal procedures and determined the estimates were reasonable.
Estimated allowance for
losses on accounts
receivable
Estimated allowance for losses on accounts receivable was based on age of receivable and historical experience.
MGO evaluated the methodologies and assumptions used in estimat ing the allowance for losses and tested subsequent cash receipts of significant accounts receivable and determined the estimates we re reasonable.
3 Significant Accounting Estimates
Estimated allowance for
losses on loans receivable
Estimated allowance for loans receivable is based on the types of loans (e.g., forgivable, deferred, gra nt, or amortizing) and manageme nt’s estimate regarding the likelihood of collectability based on lo an provisions and collateral.
MGO evaluated the methodologies and assumptions used in estimat ing the allowance and performed ana lytical procedures and determine d the estimates were reasonable.
Depreciation and
amortization of capital
assets, including
depreciation/amortization
methods and useful lives
assigned to
depreciable/amortizable
property
Useful lives, or in the case of intangible right-to-use lease a nd subscription-based information t echnology arrangement assets, t he shorter of useful lives or the lease/subscription term, for depreciable/amortizable capital assets were determined by management based on the nature of the capital asset. Depreciation/amortiza tion was calculated based on the straight-line method.
MGO assessed the reasonableness of the useful lives based on the nature of the capital assets and performed substantive analytical procedures on depreciation/amortization expense and determined the estimates were reasonable.
Accrual of compensated
absences
Accrual of compensated absences was based on accumulated hours of vacation, sick leave and other compensatory time at current pay rates for eligible employees, factoring in usage pattern and termination payout, and includes certain salary-relate d payments that are directly and incrementally associated with payments for leave.
MGO evaluated the methodologies and assumptions used to develop the obligations, agreed the accumulated unused hours and pay rates at year- end to payroll reports, and determined the estimates were supported and reasonable.
Accrual of self-insurance
claims liabilities
Estimated claims liabilities were based on prior years’ actuari al valuations using historical loss, other data, and attorney judgment about the ultimate outcome of the clai ms, adjusted for current year’s conditions.
MGO evaluated the methodologies and assumptions used to develop the claims liabilities and performed analytical procedures and dete rmined the estimates were reasonable.
Accrual of environmental
costs liabilities
Estimated environmental costs ar e based on valuation reports fr om the City’s Public Works Department and external consultants.
MGO evaluated the methodologies and assumptions used to develop the obligations, reviewed the assumptions used for reasonableness, and determined the estimates were reasonable.
Measurement of the
pension contributions, net
pension liability, pension
The actuarial pension data, including the liabilities, deferred outflows of resources, and deferred inflows of resources, are based on actu arial calculations performed in accordan ce with the parameters set fo rth for
4 Audit Adjustments and Uncorrected Misstatements
Professional standards require us to communicate to you all mat erial, corrected misstatements that were brought to the attention of management as a result of our audit procedures. There were no corrected misstatements identified by us as a result of our audit procedures.
Uncorrected misstatements or matters underlying these uncorrect ed misstatements could potentially cause future-period financial statements to be materially misstated, even if we have concluded that the uncorrected misstatements are immaterial to the financial statements under audit. We identified the following uncorrected misstatements that management has concluded are not , individually or in the aggregate, material to the basic financial statements. We agree with management’s conclusion in that regard.
Account and Adjustment Description Debit Credit
Current Year PAJE #1
Ex penses - G eneral G overnment 17,900$
Claims liability 17,900$
(Governmental Activities - To adjus t claims liability es timates to reflect updates provided by the City Attorney.) (Amount in Thousands)
Sum m a r y of Uncor r ected Missta tem ents
Significant Accounting Estimates
expense, and pension-
related deferred outflows
and inflows of resources
the pension plans under GASB Statement No. 68, Accounting and Financial Reporting for Pensions, which incorporate actuarial methods and assumptions adopted by the City.
MGO reviewed the calculations to actuarial valuations and perfo rmed analytical procedures and determined the estimates were reasonable.
Measurement of the other
postemployment benefits
(OPEB) contributions, net
OPEB liability, OPEB
expense and OPEB-related
deferred outflows and
inflows of resources
The actuarial OPEB data, including the liabilities, deferred ou tflows of resources, and deferred inflows of resources, are based on actu arial calculations performed in accordan ce with the parameters set fo rth for the pension plans under GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions, which incorporate actuarial methods and assumptions adopted by the City.
MGO reviewed the calculations to actuarial valuations and perfo rmed analytical procedures and determined the estimates were reasonable.
Discount rate used for the
calculation of the lease
receivables, and the lease
and subscription liabilities
The discount rate used for the calculation of the lease receivables, lease liabilities and subscription liab ilities are based on the City’ s estimated incremental borrowing rate using daily treasury yield curve rat es adjusted for spreads
MGO evaluated the methodologies and assumptions used in making the accounting estimate and performed substantive procedures and determined that the estimates were reasonable.
5 Departure From the Auditor’s Standard Report
Our auditor’s report includes an emphasis of matter paragraph d escribing the City’s adoption of the provisions of GASB Statement No. 101, Compensated Absences, effective July 1, 2024 . Our opinions on the financial statements were not modified with respect to this matter.
Other Information Included in Annual Comprehensive Financial Report Our responsibility for other infor mation included in the annual comprehensive financial report is to read the information and consider whether its content or the manner of its presentation is materially inconsistent with the basic financial inform ation covered by our auditor’s r eport, whether it contains a material misstatement of fact or whether the other information is otherw ise misleading. We read the City’s introductory and statistical sections. We did not identify mate rial inconsistencies with the audited basic financial statements.
Observations About the Audit Process
Disagreements With Management
We encountered no disagreements with management over the applic ation of significant accounting principles, the basis for management’s judgments on any signifi cant matters, the scope of the audit or significant disclosures to be included in the City’s financial statements.
Consultations With Other Accountants
We are not aware of any consultations management had with other accountants about accounting or auditing matters.
Significant Issues Discussed With Management
No significant issues arising fro m the audit were discussed or were the subject of correspondence with management.
Significant Difficulties Encountered in Performing the Audit We did not encounter any significant difficulties in dealing with management during the audit.
Difficult or Contentious Matters That Required Consultation We did not encounter any significant and difficult or contentious matters that required consultation outside the engagement team.
Shared Responsibilities for Independence
Independence is a joint responsibility and is managed most effectively when management, audit committees (or their equivalents), and audit firms work together in consid ering compliance with American Institute of Certified Public Accountants (AICPA) and Government Accountability Office (GAO) independence rules.
For MGO to fulfill its professional responsibility to maintain and monitor independence, management, the Mayor and City Council, and MGO each play an important role.
Our Responsibilities
1. AICPA and GAO rules require independence both of mind and in appearance when providing audit and other attestation services. MGO is to ensure that the AICPA and GAO’s General Requirements for performing non-attest services are adhered to and included in all letters of engagement.
2. Maintain a system of quality man agement over compliance with in dependence rules and firm policies.
6 The City’s Responsibilities
1. Timely inform MGO, before the effective date of transactions or other business changes, of the following:
a. New affiliates, directors, or officers.
b. Changes in the organizational structure or the reporting entity impacting affiliates such as subsidiaries, partnerships, rel ated entities, investments, join t ventures, component units, and jointly governed organizations.
2. Provide necessary affiliate information such as new or updated structure charts, as well as financial information required to perform materiality calculations needed for making affiliate determinations.
3. Understand and conclude on the permissibility, prior to the City and its affiliates, officers, directors, or persons in a decision-making capacity, engaging in business relationships with MGO.
4. Not entering into arrangements of nonaudit services resulting i n MGO being involved in making management decisions on behalf of the City.
5. Not entering into relationships resulting in close family membe rs of MGO covered persons, temporarily or permanently acting as an officer, director, or p erson in an accounting, financial reporting or compliance oversight role at the City.
Management Representations
We have requested certain written representations from manageme nt, which are included in the management representation letter dated December 30, 2025.
Internal Control and Compliance Matters
We have separately communicated on internal control and complia nce over financial reporting identified during our audit of the financial statements, as required by Government Auditing Standards.
The financial and compliance audit of the City’s major federal awards in accordance with the Uniform Administrative Requirements, Cost Principles, and Au dit Requirements for Federal Awards at 2 CFR 200 (Uniform Guidance) is in process and will be issued no later than March 31, 2026.
7 EXHIBIT A
Recent Accounting Pronouncements
8 RECENT ACCOUNTING PRONOUNCEMENTS
The following accounting pronouncements have been issued as of the date of this communication but are not yet effective and may affect the future financial reporting by the City.
Pronouncement Summary
GASB Statement No. 103,
Financial Reporting Model
Improvements
The objective of this statement is to improve key components of t h e financial reporting model to enhance its effectiveness in provi ding information that is essential for decision making and assessing a government’s accountability. This statement also addresses cert ain application issues.
Statement No. 103 are effective for the City’s financial statements for the year ending June 30, 2026.
GASB Statement No. 104,
Disclosure of Certain
Capital Assets
The objective of this statement is to establish requirements fo r certain types of capital assets to be di sclosed separately for purposes of note disclosures, and to establish requirements for capital assets h eld for sale and note disclosures for those capital assets.
Statement No. 104 are effective for the City’s financial statements for the year ending June 30, 2026.
GASB Statement No. 105,
Subsequent Events
The objective of this statement is to improve the financial rep orting requirements for subsequent event s, thereby enhancing consisten cy in their application and better meeting the information needs of f inancial statement users.
Statement No. 105 are effective for the City’s financial statements for the year ending June 30, 2027.