City Council Agenda Report
TO: Mayor Clauzel and Members of the City Council
FROM: Ken Irwin, City Manager
BY: Jennifer Riedeman, Finance Director
MEETING DATE: May 16, 2023
ITEM NO: 7.1
SUBJECT: Accept the City of Patterson’s 2021-22 Financial Audit Report, 2021-22 Single Audit Report, 2021-22 Transportation Development Act Funds Financial Audit Report, 2021-22 Abandoned Vehicle Abatement Program Financial Audit Report.
RECOMMENDATION
Motion to Accept the City of Patterson’s 2021-22 Financial Audit Report, 2021-22 Single Audit Report, 2021-22 Transportation Development Act Funds Financial Audit Report, 2021-22 Abandoned Vehicle Abatement Program Financial Audit Report.
BACKGROUND
The City of Patterson publishes financial statements presented in conformance with Generally Accepted Accounting Principles (GAAP). The financial statements were audited by the independent public accounting firm of The Pun Group, LLP, whose unmodified opinion is included within the financial section of the report. Unmodified opinion indicates that the financial statements present fairly the financial position of the City of Patterson as of June 30, 2021, and the results of operations, in accordance with generally accepted accounting principles. As part of the audit, The Pun Group, LLP also reviewed and performed a test of the City’s internal accounting control procedures to determine if there are any material weaknesses or instances of non-compliance. Based on the audit, there is no instance of non-compliance.
All non-Federal entities that expend $750,000 or more of Federal awards in a year are required to obtain an annual audit to comply with both the Single Audit Act Requirements and Federal Government’s Office of Management and Budget (OMB) standards. The Single Audit has been completed and the independent auditors have indicated that the City of Patterson has no instance of non-compliance. However, the Auditor’s did have a finding of a Delay in Financial Reporting. This finding is on page 11 of the Single Audit & Independent Auditors' Report, and the Management's View and Corrective Action Plan can be found on page 12. The delay was primarily due to the turnover in accounting staff in the Finance Department, but the department is now fully staffed and we do not foresee any challenges in meeting the deadline for reporting in the future.
The City of Patterson’s 2021-22 financial report, 2021-22 Single Audit Report, 2021-22 Abandoned Vehicle Abatement Program financial report and 2021-22 Transportation Development Act Funds financial report are available on the City’s website and are attached to this staff report.
Representative of The Pun Group will be present to discuss the audit and answer questions.
ANALYSIS
Governmental funds. The focus of the City of Patterson’s governmental funds is to provide information on near-term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the City of Patterson’s financing requirements. Spendable fund balance may serve as a useful measure of a government’s net resources at the end of the fiscal year.
As of the end of the current fiscal year, the City of Patterson’s governmental funds reported combined ending fund balances of $97,341,173, an increase of $4,055,580 in comparison with the prior year.
The increase in fund balance for the Major Governmental Funds was primarily due to an increase in Sales Tax of $2.2 million and Property Taxes of $270,144 reported in the General Fund.
The General Fund is the chief operating fund of the City of Patterson. At the end of the current fiscal year, committed, assigned and unassigned fund balance of the general fund was $17,799,703, while total fund balance was $18,425,835. The general fund’s ending fund balance increased by $4,710,573 in comparison with the prior year. The key factors in the increase of General Fund’s fund balance as follows:
• Overall, General Fund revenues (including transfers in) increased from last year by $1.9 million or 8% and expenditures (including transfers out) increased by $1.9 million or 10% over the prior year. Tax related revenue increased by $2,557,701 due to increases in property tax as City residential and commercial real estate construction completed in FY 2022 an influx of residents moved to Patterson. The population grew from 23,304 at the end of FY 2021 to 24,370 in FY 2022. Sales tax increased significantly due to one of the sales tax producers reporting change, as well as the addition of new commercial businesses that opened in FY 2022. Intergovernmental grants experienced an overall decrease of $782,373 due to one-time funding received in FY 2021 such as grants from San Joaquin Valley Air Pollution Control, CARES Act funding and the Urban Greening grant. • The overall increase in expenditures was attributed to increased capital outlay expenditures, and the relief of FY 2022 cost cutting measures at various division salaries and benefits observing hiring freeze, as well as the reprisal of Recreation program previously closed due to the pandemic.
In addition, the fund balance in the Non-Major Governmental Funds grew by $1.9 million resulting from Impact Fees received in FY 2022. The city’s governmental funds ending fund balances of $23,152,892 or 23.79 percent constitute committed, assigned and unassigned fund balance, which is available for spending at the government’s discretion within the guidelines of the funding sources.
The remainder of the fund balance of $74,188,281 is either non-spendable or restricted for purposes imposed by creditors, grantors, contributors, laws, or regulations of other governments or through enabling legislation.
Proprietary funds. The City of Patterson’s proprietary funds include the Water, Sewer and Garbage funds.
Water operating revenue increased by $382,306, and expenses decreased by $526,543 in fiscal year 2022, resulting in operating income of $2.7 million. Revenue increased due to the implementation of the new water rates in FY 2022. The Water Fund’s net position was $25,133,335. Of this amount, $18,822,865 was invested in net investment in capital assets, $3,066,323 was restricted for debt service and capital projects, and $3,244,147 was unrestricted.
Sewer operating revenue increased by $277,494 and expenses decreased by $677,381 in fiscal year 2022. The increase in operating revenue is related to the 6% sewer rate increase in FY 2022. As of June 30, 2022, the Sewer fund’s net position was $18,372,655. Of this amount, $17,615,960 was invested in net investment in capital assets, $67,267 was restricted for debt service and capital projects, and $689,428 was unrestricted.
Garbage operating revenue increased by $300,067 in fiscal year 2022. The increase was due to an increase in garbage rates of 6% and an increase in the number of customers. Garbage expenses increased by $362,488 due to increase in customers and the implementation of an additional service required under Senate Bill 1383, which requires every jurisdiction to provide organic waste collection services to all residents and businesses. As of June 30, 2022, the Garbage Fund’s net position was $1,461,422. Of this amount $20,080 was invested in net investment in capital assets and $1,441,342 was unrestricted.
The Unrestricted Net Position of the Enterprise Funds at the end of the year amounted to $5,374,917, an increase of $2,431,292 from the prior year. This balance will be used to fund water, sewer and garbage operations and planned capital improvements.
FISCAL IMPACT
Acceptance of these reports does not affect the City’s budget or its financial condition. The report merely reflects an audit of the City’s financial records at June 30, 2022.