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INDEPENDE
NT 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 Hon
orable Mayor and Members of the City Council
City of Pasad
ena, California
We have audited, in accordance with the auditing standards gene rally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of City of Pasadena, California (the “City”), as of and for the year ended June 30, 2023, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements, and have issued our report thereon dated December 28, 2023.
Repor
t on Internal Control over Financial Reporting
In planning and performing our audit of the financial statement s, 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 allo w 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 b asis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less s evere 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. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. We identified certain deficiencies in internal control, described in the accompanying schedule of findings and responses as items 2023-001 and 2023-002 that we consider to be significant deficiencies.
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 ma terial 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.
Attachment B
To the Honorable Mayor and Members of the City Council
City of Pasadena, California
City of Pasadena’s Response to Findings
Government Auditing Standards requires the auditor to perform limited procedures on the City ’s response to the findings identified in our audit and described in the accompany ing schedule of findings and responses. The City’s response was not subjected to the other auditing procedures app lied in the audit of the financial statements and, accordingly, we express no opinion on the response.
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 e ffectiveness 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 inter nal control and compliance. Acco rdingly, this communication is not suitable for any other purpose.
Brea, California
December 28, 2023
To the Honorable Mayor and Members of the City Council
City of Pasadena, California
SCHEDULE OF FINDINGS AND RESPONSES
Reference Number
2023-001 – Timeliness of Bank Reconciliation Preparation
Evaluation of Finding
Significant Deficiency
Condition
A cash reconciliation that recon ciles from the bank balance to the general ledger balance should be prepared to determine that all cash transactions have been recorded properly and to discover bank errors. Bank statements in some instances were accumulated for several months before they were reconciled to the appropriate general ledger controls. Not reconciling the accounts on a monthly and timely basis means that errors or other problems might not be recognized or resolved on a timely basis. We recommend that all bank accounts be reconciled each month prior to preparation of monthly financial statements.
Criteria
In order to make the financial reports generated by the account ing system as meaningful as possible, the City should reconcile to the general ledger accounts for cash on a monthly basis as timely as possible.
Cause of Condition
Due to the significant volume and detail of individual cash transactions, in addition to staffing and personnel issues experienced by the City, there were instances where the City di d not possess the capacity to perform the monthly bank reconciliations on a timely basis.
Effect or Potential Effect of Condition
Not reconciling the accounts on a monthly and timely basis mean s that errors or other problems might not be recognized or resolved on a timely basis.
Recommendation
The Finance Department should look at ensuring that sufficient experienced personnel are available to help facilitate the monthly bank reconciliation processes.
Management Response
We agree with the finding. The City is currently implementing e fficiency improvements to the monthly bank reconciliation process in hopes to alleviate this occurrence during Fiscal Year 2024.
Reference Number
2023-002 – Year-End Close and Financial Reporting
Evaluation of Finding
Significant Deficiency
Condition
During the audit, we found the following conditions that result ed in significant adjustments to the financial statements.
Accuracy in External Financial Reporting
The year-end closing process did not ensure that account balances were reconciled and accurate in advance of the audit requiring a significant number of correcting journal entr ies provided by the City to correct the final financial statements. It appears these errors were primarily caused by th e trial balance being prepared from data that was not always complete, contained errors, and appropriate year end reconciliations had not been performed.
To the Honorable Mayor and Members of the City Council
City of Pasadena, California
SCHEDULE OF FINDINGS AND RESPONSES (CONTINUED)
Criteria
Management is responsible for the preparation and fair presenta tion, as well as the accuracy of its financial statements, including disclosures in accordance with accounting principles generally accepted in the United States of America. This includes the design, implementation, and maintenance of internal controls relevant to the preparation and fair presentation of financial statement s that are free from material misstatement, whether due to error or fraud.
Cause of Condition
Due to the significant volume and detail of general ledger tran sactions of the City, in addition to newly issued complex Government Accounting St andards Board ( GASB) Pronouncem ents, some processes were not fully executed and reflected in the City trial balance prior to being furnished to the auditors.
Effect or Potential Effect of Condition
Due to the items noted above, there is a potential for signific ant misstatements to be present in the initial trial balance that is provided to the auditors.
Recommendation
The City should put in place formalized year-end close procedures to ensure the close is complete and reduce the amount of journal entries needed and errors found after the clo sing process has been completed. We suggest management also establish effective review policies and procedu res, including but not limited to; apply analytical procedures on the trial balance numbers and perform reconciliations of all significant accounts.
Management Response
Management agrees with the finding. Due to the implementation o f the newly issued and complex GASB pronouncement, a number of journal entries and corrections were made by City staff. The City will implement and follow formal year-end closing processes and procedures to ensu re sufficient review and corrections to the trial balance are made, prior to year-end close.