LSLCPAS.COM
INDEPENDENT AUDITORS’ REPORT ON COMPLIANCE
AND ON INTERNAL CONTROL OVER COMPLIANCE
To the Honorable Mayor and Members of the City Council
City of Orang
e, California
Report on Compliance
Opinion
We have audited the Air Pollution Reduction Fund (the “Fund ) of the City of Orange, California (the “City”)’s compliance with the types of compliance requirements identified as subject to audit in California Assembly Bill 2766, Chapter 1705 (44220 through 44247) (“AB 2766”) that could have a direct and material effect on the City’s AB 2766 Subvention Fund Program (the “Program”) for the year ended June 30, 2024.
In our opinion, the City complied, in all material respec ts, with the types of compliance requirements referred to above that could have a direct and material effect on the Program for the year ended June 30, 2024.
Basis for Op
inion
We conducted our audit of compliance in accordance wi th auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained inGovernment Auditing Standards, issued by the Comptroller General of the United States; and the audit requirements of AB 2766. Our responsibilities under those standards and AB 2766 are further described in the Auditor’s Responsibilities for the Audit of Compliance section of our report.
We are required to be independent of the City and to meet our other ethical responsibilities, in accordance with relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion on compliance for the Program. Our audit does not provide a legal determination of the City’s compliance with the compliance requirements referred to above.
Responsibilities of Management for Compliance
Management is responsible for compliance with the requirements referred to above and for the design, implementation, and maintenance of effective internal c ontrol over compliance with the requirements of laws, statutes, regulations, rules, and provisions of contracts or grant agreements applicable to the Program.
Auditor’s Responsibilities for the Audit of Compliance
Our objectives are to obtain reasonable assurance about whether material noncompliance with the compliance requirements referred to above occurred, whether due to fr aud or error, and express an opinion on the City’s compliance based on our audit. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with generally accepted auditing standards, Government Auditing Standards, and AB2766 will always detect material noncompliance when it exists. The risk of not detecting material noncompliance resulting from fraud is higher than for that resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the overri de of internal control.
Noncompliance with the compliance requirements referred to above is considered material if there is a substantial likelihood that, individually or in the aggregate, it woul d influence the judgment made by a reasonable user of the report on compliance about the City’s compliance with the requirements the Program as a whole.
To the Honorable Mayor and Members of the City Council
City of Orange, California
In performing an audit in accordance with generally accepted auditing standards, Government Auditing Standards, and AB 2766, we:
Exercise professional judgment and maintain professional skepticism throughout the audit.
Identify and assess the risks of material noncompliance , whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such pr ocedures include examining, on a test basis, evidence regarding the City’s compliance with the compliance requirements referred to above and performing such other procedures as we considered necessary in the circumstances.
Obtain an understanding of the City’s internal control ov er compliance relevant to the audit in order to design audit procedures that are appropriate in the circumstances and to test and report on internal control over compliance in accordance with AB 2766, but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control over compliance. Accordingly, no such opinion is expressed.
We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and any signi ficant deficiencies and material w eaknesses in internal control over compliance that we identified during the audit.
Report on Internal Control over Compliance
A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compli ance requirement of the Program on a timely basis. A material weakness in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance, such that there is a reasonabl e possibility that material noncompliance with a type of compliance requirement of the Program will not be prevented, or detec ted and correc ted, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of the Program that is less severe than a material weakness in internal control over compliance, yet im portant enough to merit attention by those charged with governance.
Our consideration of internal control over compliance was for the limited purpose described in the Auditor’s Responsibilities for the Audi t of Compliance section above and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or signifi cant deficiencies in internal control over compliance. Given these limitations, during our audit we did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses, as defined above. However, material weaknesses or significant deficiencies in internal control over compliance may exist that were not identified.
Our audit was not designed for the purpo se of expressing an opinion on the effe ctiveness of internal control over compliance. Accordingly, no such opinion is expressed.
The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of AB 2766. Accordingly, this report is not suitable for any other purpose.
Irvine, California
February 12, 2025
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CITY OF ORANGE, CALIFORNIA
AIR POLLUTION REDUCTION FUND
Financial Statements
With Report on Audit
By Independent
Certified Public Accountants
For the Year Ended June 30, 2024
CITY OF ORANGE, CALIFORNIA
AIR POLLUTION REDUCTION FUND
Financial Statements
With Report on Audit
By Independent
Certified Public Accountants
For the Year Ended June 30, 2024
Table of Contents
Page
Number
FINANCIAL SECTION
INDEPENDENT AUDITORS’ REPORT ................................................................................................................... 1
BASIC FINANCIAL STATEMENTS
GOVERNMENT - WIDE FINANCIAL STATEMENTS
Statement of Net Position ...................................................................................................................................... 4
Statement of Activities ........................................................................................................................................... 5
FUND FINANCIAL STATEMENTS
Balance Sheet – Governmental Fund ................................................................................................................... 6
Reconciliation of the Balance Sheet - Governmental Fund to the Statement of Net Position .................................................................................................................. 7
Statement Of Revenues, Expenditures and Changes In
Fund Balance – Governmental Fund: .......................................................................................................... 8
Reconciliation of the Statement of Revenues
Expenditures and Changes in Fund Balances of Governmental Fund to the Statement of Activities ....................................................................................................................... 9
Notes to Financial Statements ................................................................................................................................ 10
REQUIRED SUPPLEMENTARY INFORMATION
Budgetary Comparison Schedule ........................................................................................................................... 16
Note to Required Supplementary Information ................................................................................................... 17
OTHER REPORT
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 ........................................................................................................... 18
LSLCPAS.COM
INDEPENDE
NT AUDITORS’ REPORT
To the Hon
orable Mayor and Members of the City Council
City of Orang
e, California
Report on the Audit of the Financial Statements
Opinions
We have audited the accompanying financial statements of the governmental activities and the governmental fund of the Air Pollution Reduction Fund (the “Fund”), a special revenue fund of the City of Orange, California (the “City”), as of and for the year ended June 30, 2024, and the related notes to the financial statements, which collectively comprise the Fund’s basic financial statements as listed in the table of contents.
In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities and governmental fund of the Fund, as of June 30, 2024, 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 the Fund and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.
Emphasis of Matter
Fund Financial Statements
As discussed in Note 1, the financial statements of the Fund are intended to present the financial position, the changes in financial position, and, where applicable, cash flows of only that portion of the governmental activities, each major fund, and the aggregate remaining fund information of the City that is attributable to the transactions of the Fund. They do not purport to, and do not, present fairly the financial position of the City, as of June 30, 2024, the changes in its financial position, or, where applicable, its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. Our opinion is not modified with respect to this matter.
Responsibilities of Management for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
To the Hon
orable Mayor and Members of the City Council
City of Orange, California
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.
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:
x Exercise professional judgment and maintain professional skepticism throughout the audit. x 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. x 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. x 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. x 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.
Required Supplementary Information
Acco
unting principles generally accepted in the United States of America require that the budgetary comparison schedules, as listed on the table of contents, 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. 2 To the Honorable Mayor and Members of the City Council City of Orange, California
Management has omitted the management’s discussion and analysis and required pension and other post-employment benefit schedules that accounting principles generally accepted in the United States of America require to be presented to supplement the basic financial statements. Such missing information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. Our opinions on the basic financial statements are not affected by this missing information.
Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards , we have also issued our report dated February 12, 2025, on our consideration of the City’s internal control over the Fund’s 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 the Fund’s financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering City’s inte rnal control over the Fund ’s financial reporting and compliance.
Irvine, California
February 12, 2025
3 CITY OF ORANGE, CALIFORNIA
AIR POLLUTION REDUCTION FUND
Statement of Net Position
Governmental
Activities
ASSETS
Cash and investments 279,015$
Receivables (net of uncollectibles):
Accounts 485
Accrued interest 2,142
Capital assets (net of accumulated depreciation/amortization) 165,157 Total assets 446,799
LIABILITIES
Accounts payable 27,710
Due to the City of Orange 47,536
Total liabilities 75,246
NET POSITION
Invested in capital assets 165,157
Restricted for air pollution reduction projects 206,396 Total net position 371,553$
June 30, 2024
See Notes to Financial Statements.
4 CITY OF ORANGE, CALIFORNIA
AIR POLLUTION REDUCTION FUND
Statement of Activities
For the Year Ended June 30, 2024
Operating Capital
Charges for Contributions Contributions Governmental
Expenses Services and Grants and Grants Activities
Functions/Programs:
Primary government:
Governmental activities:
General government 87,014$ -$ 186,188$ -$ 99,174$ Public safety 9,288 -
-
- (9,288)
Total governmental activities 96,302$ -$ 186,188$ -$ 89,886$ General revenues and transfers:
General revenues:
Use of money and property 8,675
Total general revenues and transfers 8,675
Change in net position 98,561
Net position-beginning 272,992
Net position-ending 371,553$
Program Revenues
Net (Expenses)
Revenues and
Changes in Net
Position
See Notes to Financial Statements.
5 CITY OF ORANGE, CALIFORNIA
AIR POLLUTION REDUCTION FUND
Balance Sheet - Governmental Fund
June 30, 2024
ASSETS
Cash and investments 279,015$
Receivables (net of allowance for uncollectible):
Accounts 485
Accrued interest 2,142
Total assets 281,642$
LIABILITIES
Accounts payable 27,710$
Due to the City of Orange 47,536
Total liabilities 75,246
FUND BALANCE
Restricted for air pollution remediation projects 206,396 Total fund balance 206,396
Total liabilities
and fund balances (deficits) 281,642$
See Notes to Financial Statements.
6 AIR POLLUTION REDUCTION FUND
Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Position
June 30, 2024
Amounts reported for governmental activities in the Statement of Net Position are different because:
Total fund balances of governmental fund 206,396$
165,157
Net position of governmental activities 371,553$
CITY OF ORANGE, CALIFORNIA
Capital assets, net of accumulated depreciat ion/amortization, used in governmental activities are not financial resources and, therefore, are not reported in the funds.
See Notes to Financial Statements.
7 CITY OF ORANGE, CALIFORNIA
AIR POLLUTION REDUCTION FUND
Statement of Revenues, Expenditures, and
Changes in Fund Balance - Governmental Fund
For the Year Ended June 30, 2024
REVENUES
Intergovernmental 186,188$
Use of money and property 8,675
Total revenues 194,863
EXPENDITURES
Current:
General government 60,918
Public safety 9,288
Capital outlay 84,217
Total expenditures 154,423
Net change in fund balances 40,440
Fund balances -beginning 165,956
Fund balances -ending 206,396$
See Notes to Financial Statements.
8 AIR POLLUTION REDUCTION FUND
Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities For the Year Ended June 30, 2024
Amounts reported for governmental activities in the Statement of Activities are different because:
Net change in fund balances - Governmental Fund: 40,440$ Capital outlay 84,217$
Depreciation expense (36,626)
Total adjustment 47,591
Changes in pension liabilities and related deferred outflows and inflows of resources (1,398) Cha
nges in OPEB liabilities and related deferred outflows and inflows of resources 11,928 Total adjustment 10,530
Change in net position of governmental activities 98,561$ Some expenses reported in the Statement of Activities do not require the use of current financial resources and, therefore, are not reported as expenditures in the governmental funds.
CITY OF ORANGE, CALIFORNIA
Governmental funds report capital outlays are expenditures. However, in the Statement of Activities, the cost of these assets is allocated over their estimated useful lives and reported as depreciation expense. This is the amount by which capital outlays exceeded depreciation/amortization expense in the current period.
See Notes to Financial Statements.
9 CITY OF ORANGE, CALIFORNIA
AIR POLLUTION REDUCTION FUND
Notes to the Financial Statements
For the Year Ended June 30, 2024
NOTE 1: GENERAL
The financial statements are intended to reflect the financial position and changes in the financial position attributable to the Air Pollution Reduction Special Revenue Fund (AQMD) of the City of Orange, California (the City). These financial statements are exclusively for AQMD and do not purport to, and do not, present fairly the financial position and changes in the financial position for the City.
Assembly Bill 2766 authorizes the South Coast Air Quality Management District (SCAQMD) to impose an annual vehicle registration fee and to distribute a portion of the collected revenues to all local jurisdictions within the South Coast Air Basin. These revenues are to be used solely to reduce air pollution from motor vehicles by implementing new programs and studies necessary for the implementation of the California Clean Air Act.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Description of the Reporting Entity
The accounts of the City are organized on the basis of funds, each of which is considered a separate accounting entity with a self-balancing set of accounts. Monies received under Assembly Bill 2766 are recorded in a Special Revenue Fund, the Air Pollution Reduction Fund, which is used to account for the proceeds of revenue to be used for the purpose of implementing the California Clean Air Act.
B. Basis of Presentation
The Air Pollution Reduction Fund’s financial statements are prepared in accordance with accounting principles generally accepted in the United States of America. The Governmental Accounting Standards Board (GASB) is the acknowledged standard setting body for establishing accounting and financial reporting standards followed by governmental entities in the United States of America.
The government-wide financial statements (i.e., the statement of net position and the statement of activities) report information on all of the nonfiduciary activities of the fund. The AQMD has no fiduciary activities.
The statement of activities demonstrates the degree to which the direct expenses of a given function or segments are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment.
Program revenues include (1) charges to customers or applicants who purchase, use or directly benefit from goods, services or privileges provided by a given function or segment, and (2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other items not properly included among program revenues are reported instead as general revenues.
The underlying accounting system of the City is organized and operated on the basis of separate funds, each of which is considered to be a separate accounting entity. The operations of each fund are accounted for with a separate set of self-balancing accounts that comprise its assets, liabilities, deferred inflows of resources, fund equity, revenues and expenditures or expenses, as appropriate. Governmental resources are allocated to and accounted for in individual funds based upon the purposes for which they are to be spent and the means by which spending activities are controlled.
While separate government-wide and fund financial statements are presented, they are interrelated.
10 CITY OF ORANGE, CALIFORNIA
AIR POLLUTION REDUCTION FUND
Notes to the Financial Statements
For the Year Ended June 30, 2024
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
C. Measurement Focus, Basis of Accounting and Financial Statement Presentation
The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting . Under the economic resources measurement focus, all (both current and long term) economic resources and obligations are included in the accompanying statement of net position. Under 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. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met.
Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting . Under the current financial resources measurement focus, only current assets and liabilities are generally included on the balance sheet. Under 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. The city uses an availability period of 60 days for all revenues. Expenditures generally are recorded when a liability is incurred, as under accrual accounting.
Intergovernmental and interest revenues associated with the current fiscal period are all considered to be susceptible to accrual and have been recognized as revenues of the current fiscal period. All other revenue items are considered to be measurable and available only when cash is received by the AQMD.
D. Cash and Investments
Investments are reported in the accompanying financial statements at fair value, which is 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. Changes in fair value that occur during a fiscal year are recognized as interest income for that fiscal year. Use of money and property includes interest earnings, changes in fair value (realized/unrealized), gains or losses realized upon the liquidation, maturity or sale of investments and rental income.
Cash and investments are pooled with other City funds for investment purposes, with interest being allocated monthly to various funds based on each fund’s prior month-end cash and investment balance.
E. Deferred Outflows/Inflows of Resources
In addition to assets, the statement of net position will sometimes 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 and will not be recognized as an outflow of resources (expense/expenditure) until that time. The AQMD has items related to the pension and OPEB plans that qualify for reporting in this category.
In addition to liabilities, the statement of net position will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to a future period and will not be recognized as an inflow of resources (revenue) until that time. The AQMD has items related to the pension and OPEB plans that qualify for reporting in this category.
11 CITY OF ORANGE, CALIFORNIA
AIR POLLUTION REDUCTION FUND
Notes to the Financial Statements
For the Year Ended June 30, 2024
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) F.
Net Position Flow Assumption
Sometimes th
e AQMD will fund outlays for a particular purpose from both restricted (e.g., restricted bond or grant proceeds) and unrestricted resources. In order to calculate the amounts to report as restricted net position and unrestricted net position in the government-wide financial statements, a flow assumption must be made about the order in which the resources are considered to be applied. It is the AQMD’s policy to consider restricted net position to have been depleted before unrestricted net position is applied.
G.
Fund Balance Flow Assumptions
Sometimes t
he AQMD will fund outlays for a particular purpose from both restricted and unrestricted resources (the total of committed, assigned and unassigned fund balance). In order to calculate the amounts to report as restricted, committed, assigned and unassigned fund balance in the governmental fund financial statements, a flow assumption must be made about the order in which the resources are considered to be applied. It is the AQMD’s policy to consider restricted fund balance to have been depleted before using any of the components of unrestricted fund balance. Further, when the components of unrestricted fund balance can be used for the same purpose, committed fund balance is depleted first, followed by assigned fund balance. Unassigned fund balance is applied last.
H. Fund Equity
In the fund financi
al statements, government funds report the following fund balance classification:
Nonspendable includes amounts that cannot be spent because they are either (a) not in spendable form or (b) le gally or contractually required to be maintained intact. The Air Pollution Reduction Fund did not have a non
spendable fund balance as of June 30, 2024.
Restricted includes amounts that are constrained on the use of resources by either (a) external creditors, grantors, contributors or laws of regulations of other governments or (b) by law through constitutional provisions or enabling legislation.
Committed includes amounts that can only be used for specific purposes pursuant to constraints imposed by formal action of the government’s highest authority, the City Council. The formal action that is required to be taken to establish, modify or rescind a fund balance commitment is a resolution. The AQMD did not have any committed fund balance as of June 30, 2024.
Assigned includes amounts that are constrained by the government’s intent to be used for specific purposes but are neither restricted nor committed. The AQMD did not have any assigned fund balance as of June 30, 2024.
Unassigned includes the residual amounts that have not been restricted, committed or assigned to specific purposes. The AQMD did not have any unassigned fund balance as of June 30, 2024.
I. Estima
tes
The prepa
ration of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts of assets, deferred outflows of resources, liabilities and deferred inflows of resources at the reporting date.
Accordingly, actual results could differ from those estimates. 12 CITY OF ORANGE, CALIFORNIA
AIR POLLUTION REDUCTION FUND
Notes to the Financial Statements
For the Year Ended June 30, 2024
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
J. Capital Assets
Capital assets (including infrastructure) are recorded at cost where historical records are available and at an estimated original cost where no historical records exist. Contributed capital assets are valued at their acquisition value at the date of contribution. Generally, capital asset purchases in excess of $10,000 are capitalized if they have an expected useful life of two years or more.
Capital assets include additions to public domain (infrastructure), certain improvements including pavement, curb and gutter, sidewalks, traffic control devices, streetlights, sewers, storm drains, bridges, right-to-use leased assets and right-of-way within the City.
Capital assets used in operations are depreciated/amortized over their estimated useful lives using the straight-line method in the Government-wide Financial Statements and in the Fund Financial Statements of the Enterprise Funds. Depreciation/amortization is charged as an expense against operations and accumulated depreciation is reported on the respective balance sheets. The lives used for depreciation/amortization purposes for each capital asset class are:
Structures and improvements 20-50 years
Infrastructure 30-65 years
Wells, reservoirs and tanks 40 years
Reservoirs and tanks 60 years
Water lines/pipelines 60 years
Pumps & booster pumps 60 years
Vehicles and other equipment 2-25 years
NOTE 3: CASH AND INVESTMENTS
A. Equity in the Cash and Investment Pool of the City of Orange
The AQMD has no separate bank accounts or investments other than its equity in the cash and investment pool managed by the City. The AQMD is a voluntary participant in that pool. This pool is governed by and under the regulatory oversight of the Investment Policy adopted by the City Council of the City. The AQMD has not adopted an investment policy separate from that of the City. The fair value of the AQMD’s investment in this pool is reported in the accompanying financial statements at amounts based upon the AQMD’s pro rata share of the fair value calculated by the City for the entire City portfolio. The balance available for withdrawal is based on the accounting records maintained by the City, which are recorded at the estimated fair value.
B. Disclosures Relating to the Investment Policy, Interest Rate Risk, Credit Risk and Custodial Credit Risk
Additional disclosures related to the investment policy, interest rate risk, credit risk and custodial credit risk are available in the City of Orange’s Annual Comprehensive Financial Report.
C. Fair Value Measurements
The AQMD categorizes its fair value measurement within the fair value hierarchy established by accounting principles generally accepted in the United States of America. The hierarchy is based on the relative inputs used to measure the fair value of the investments. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).
The AQMD’s investment in the City investment pool is not subject to the fair value hierarchy. 13 CITY OF ORANGE, CALIFORNIA
AIR POLLUTION REDUCTION FUND
Notes to the Financial Statements
For the Year Ended June 30, 2024
NOTE 4: CAPITAL ASSETS
Capital asset activity for the year ended June 30, 2024 was as follows:
Depreciation for the current year is broken down as follows:
NOTE 5: RETIREMENT PLAN
A. Plan Description, Benefits Provided and Employees Covered
The City contributes to the California Public Employees’ Retirement System (CalPERS), an agent multiple-employer public employee defined benefit pension plan (the Plan). CalPERS provides retirement and disability benefits, annual cost-of-living adjustments and death benefits to plan members and their beneficiaries. CalPERS acts as a common investment and administrative agent for participating public entities within the State of California. Benefit provision and all other requirements are established by state statute and memoranda of understanding with employee bargaining units. A full description of the pension plan regarding the number of employees covered, benefit provisions, assumptions (for funding, but no accounting purposes) and membership information is listed in the CalPERS June 30, 2022. Valuation Report. Details on the benefits provided can be obtained in Appendix B of the Actuarial Valuation Report. This report and CalPERS’s audited financial statements are publicly available reports that can be obtained at the CalPERS’s website under Employers. Also, for accounting purposes, the GASB 68 Accounting Valuation Report is available for the City of Orange Miscellaneous Plan as of the measurement date June 30, 2023. This report is available from the City.
The plan provides benefits for two membership classifications, Miscellaneous and Safety, and those benefits are tiered based upon the date of CalPERS membership. Safety membership is extended to those in active law enforcement and fire suppression, while all others are classified as Miscellaneous members. Assembly Bill (AB) 340, also known as the Public Employees’ Pension Reform Act (PEPRA), created new benefit formulas and a final compensation period, as well as new contribution requirements for new employees. For the purpose of PEPRA, “new employees” are those hired on or after January 1, 2013 and had never been a member of CalPERS previously.
CalPERS refers to members prior to January 1, 2013 as classic members.
City employees involved with the AQMD program are covered under the City’s Miscellaneous Plan. As such, related pension balances and activities have been allocated proportionately to the AQMD in relation to salaries paid. During the fiscal year ended June 30, 2024, the City stopped allocating salaries to the AQMD program and no longer recognizes the OPEB plans deferred outflows, deferred inflows, and net pension liability.
Balance Balance
June 30, 2023 Additions Deletions Transfers June 30, 2024 Governmental activities:
Capital assets, being depreciated
Vehicles 117,566$ 84,218$ -$ -$ 201,784$ Total capital assets, being depreciated 117,566 84,218 - - 201,784 Less accumulated depreciation
Vehicles - 36,627 - - 36,627 Total accumulated depreciation - 36,627 - - 36,627 Total capital assets, being depreciated, net 117,566 47,591 - - 165,157 Total governmental activities capital assets 117,566$ 47,591$ -$ -$ 165,157$ General government 36,627$
Total depreciation expense 36,627$
14 CITY OF ORANGE, CALIFORNIA
AIR POLLUTION REDUCTION FUND
Notes to the Financial Statements
For the Year Ended June 30, 2024
NOTE 6: OTHER POST EMPLOYMENT BENEFITS (OPEB)
A.
Plan Description, Benefits Provided
The City adm
inisters an agent multiple-employer defined benefit post-employment healthcare plan for eligible City retirees and their dependents through California Public Employees’ Retirement System (CalPERS). Retirees from the City enrolled in the Public Employees Medical and Hospital Insurance Program (PEMHCA), is an agent multiple-employer postemployment benefits plan through CalPERS, are eligible for these benefits.
These health insurance benefits are authorized through City resolution/memoranda’s of understanding defining health care benefits and contribution levels and through the contractual agreement between the City and CalPERS.
The City currently contributes $158 per month for each retiree and the retiree is responsible for the balance of the premium amount.
City employees involved with the AQMD program are covered under the City’s OPEB plan as such, related OPEB balances and activities have been allocated proportionately to the AQMD in relation to salaries paid. During the fiscal year ended June 30, 2024, the City stopped allocating salaries to the AQMD program and no longer recognizes the OPEB plans deferred outflows, deferred inflows, and total OPEB liability.
NOTE 7: AVAILABILITY OF OTHER INFORMATION
Copies of separate progress reports filed with the SCAQMD Board of Directors, which detail the accomplishments during the fiscal year ended June 30, 2024, are available at the Orange City Hall.
NOTE 8: SUBSEQUENT EVENTS
In preparing these financial statements, the City has evaluated events and transactions for potential recognition or disclosure through February 12, 2025, the date the financial statements were available to be issued. 15 Variance with
Final Budget
Budget Amounts Actual Positive
Original Final Amounts (Negative)
REVENUES
Intergovernmental 182,000$ 182,000 $ 186,188 $ 4,188$ Use of money and property 478 478 8,675 8,197 Total revenues 182,478 182,478 194,863 12,385
EXPENDITURES
Current:
General government 64,380 64,380 60,918 3,462 Public safety 10,000 10,000 9,288 712 Capital outlay 86,000 178,860 84,217 94,643 Total expenditures 160,380 253,240 154,423 98,817 Net change in fund balance 22,098$ (70,762)$ 40,440 111,202$ Fund balance-beginning 165,956
Fund balance-ending 206,396$
CITY OF ORANGE, CALIFORNIA
AIR POLLUTION REDUCTION FUND
Budgetary Comparison Schedule
For the Year Ended June 30, 2024
16 CITY OF ORANGE, CALIFORNIA
AIR POLLUTION REDUCTION FUND
Note to Required Supplementary Information
For the Year Ended June 30, 2024
NOTE 1: BUDGETARY ACCOUNTING
The budget for the Air Pollution Reduction Special Revenue Fund is formally adopted annually and is prepared in accordance with accounting principles generally accepted in the United States of America. The budget is monitored to ensure compliance with legal provisions embodied in the appropriated budget as approved or amended by the City Council throughout the year. Department heads are responsible for monitoring their department’s appropriated budget. The legal level of budgetary control is at the fund level. The City’s management may transfer resources between operating line items within a department in the same fund as they see appropriate. Encumbrances (e.g., purchase orders, contracts) outstanding at year-end are reported as restriction of fund balance since they do not constitute expenditures or liabilities.
17 INDEPENDENT AUDITORS’ REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON
COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN
ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS
To the Honorable Mayor and Members of the City Council
City of Orange, California
We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the Air Pollution Reduction special revenue fund of the City of Orange, California (the “City”), as of and for the year ended June 30, 2024, and the related notes to the financial statements, which collectively comprise the Fund’s basic financial statements, and have issued our report thereon dated February 12, 2025.
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 the Fund’s 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 entity’s financial statements will not be prevented, or detected and corrected, on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance.
Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or, significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses or significant deficiencies may exist that were not identified.
Report on Compliance and Other Matters
As part of obtaining reasonable assurance about whether the Fund’s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, including the requirements of California Assembly Bill 2766, Chapter 1705 (44220 through 44247), noncompliance with which could have a direct and material effect on the financial statements. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.
LSLCPAS.COM
To the Honorable Mayor and Members of the City Council
City of Orange, California
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 Fund’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 Fund’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose.
Irvine, California
February 12, 2025
19