Significant Audit Findings
Qualitative Aspects of Accounting Practices
Management is responsible for the selection and use of appropriate accounting policies. The significant accounting policies used by the City are described in Note 1 to the financial statements. As described in Note 1 to the financial statements, the City changed accounting policies related to financial reporting by adopting the following Statements of Governmental Accounting Standards (GASB Statement) in 2021:
¾ GASB No. 84, Fiduciary Activities
¾ GASB No. 90, Majority Equity Interests
¾ GASB No. 93, Interbank offered rates (except LIBOR removal and lease modifications) ¾ GASB No. 97, Certain Component Unit Criteria, and Accounting and Financial Reporting for Internal Revenue Code Section 457 Deferred Compensation Plans
¾ GASB No. 98, The Annual Comprehensive Financial Report 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 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:
x Depreciable lives and estimated residual value of property and equipment x Investment valuations
x Allowance for uncollectible accounts
x Accumulated depreciation
x Pension plans (actuarial assumptions)
x Net Other Post-employment Benefits (OPEB) plan (actuarial assumptions) Certain financial statement disclosures are particularly sensitive because of their significance to financial statement users. The most sensitive disclosure(s) affecting the financial statements were:
x Summary of Significant Accounting Policies
x Cash and Investments
x Long Term Debt
x Capital Assets
x Employee Retirement Plans
x Other Postemployment Benefits (OPEB) Plan
x Commitments and Contingencies
x Successor Agency
x Prior Period Adjustment
The financial statement disclosures are neutral, consistent, and clear. 354 of 369
To The Honorable Mayor and Members
of the City Council of the City of Pinole
Pinole, California
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 aggregate, to each opinion unit’s financial statements as a whole.
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 the management representation letter dated December 30, 2021.
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.
Other Matters
We applied certain limited procedures to the required supplementary information (RSI) that 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 RSI and do not express an opinion or provide any assurance on the RSI.
We were engaged to report on the combining and individual fund financial statements and budgetary comparison schedules which accompany the financial statements but are not RSI. With respect to this supplementary information, we made certain inquiries of management and evaluated the form, content, 355 of 369
To The Honorable Mayor and Members
of the City Council of the City of Pinole
Pinole, California
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.
We were not engaged to report on the introductory section and statistical section, which accompany the financial statements but are not RSI. Such information has not been subjected to the auditing procedures applied in the audit of the basic financial statements, and accordingly, we do not express an opinion or provide any assurance on it.
Restriction on Use
This information is intended solely for the use of City Council and management of the City and is not intended to be, and should not be, used by anyone other than these specified parties.
Very truly yours,
Badawi & Associates, CPAs
Berkeley, California
December 30, 2021
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Pinole, California
Independent Accountants’ Report
For the year ending June 30, 2022
ATTACHMENT F
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City of Pinole
Appropriations Limit Schedule
For the year ending June 30, 2022
Table of Contents
Page
Independent Accountants’ Report ........................................................................................................................... 1 Appropriations Limit Schedule .............................................................................................................................. 3 Notes to Appropriations Limit Schedule .............................................................................................................. 4 359 of 369
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INDEPENDENT ACCOUNTANTS’ REPORT
To the Honorable Mayor and City Council
of the City of Pinole
Pinole, California
We have performed the procedures enumerated below on the accompanying Appropriations Limit Schedule of the City of Pinole (City) for the fiscal year ending June 30, 2022. The City’s management is responsible for the accompanying Appropriations Limit Schedule.
The City has agreed to and acknowledged that the procedures performed are appropriate to meet the intended purpose of the requirements of Section 1.5 of Article XIII-B of the California Constitution. Additionally, the League of California Cities (as presented in the publication entitled Agreed-upon Procedures Applied to the Appropriations Limitation Prescribed by Article XIII-B of the California Constitution) has agreed to and acknowledged that the procedures performed are appropriate for their purposes. 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 performed and our findings are described below:
1. We obtained the completed worksheets used by the City to calculate its appropriations limit for the fiscal year ending June 30, 2022, and determined that the limit and annual calculation factors were adopted by resolution of City Council. We also determined that the population and inflation options were selected by a recorded vote of City Council.
Finding: No exceptions were noted as a result of our procedures.
2. For the accompanying Appropriations Limit Schedule, we added the prior year’s limit to the total adjustments, and agreed the resulting amount to the current year’s limit.
Finding: No exceptions were noted as a result of our procedures.
3. We agreed the current year information presented in the accompanying Appropriations Limit Schedule to corresponding information in worksheets used by the City.
Finding: No exceptions were noted as a result of our procedures.
4. We agreed the prior year appropriations limit presented in the accompanying Appropriations Limit Schedule to the prior year appropriations limit adopted by the City Council during the prior year.
Finding: No exceptions were noted as a result of our procedures. 361 of 369
To the Honorable Mayor and Members of City Council
of the City of Pinole
Pinole, California
2 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 AICPA. We were not engaged to and did not conduct an examination or review, the objective of which would be the expression of an opinion or conclusion, respectively, on the accompanying Appropriation Limit Schedule. 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 the City Council and management of the City and is not intended to be and should not be used by anyone other than these specified parties. However, this report is a matter of public record, and its distribution is not limited.
Badawi & Associates, CPAs
Berkeley, California
January 13, 2022
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City of Pinole
Appropriations Limit Schedule
For the year ending June 30, 2022
Amount Source
A. Appropriations limit for the year ended June 30, 2021 $ 138,723,892 Prior year schedule B. Calculation factors:
1. Population increase ratio 1.0035 State Department of Finance
2. Inflation increase ratio 1.0573 State Department of Finance
3. Total adjustment factor ratio 1.0610 B1 * B2
C. Annual adjustment increase 8,462,234 [(B3-1)*A)]
D. Other adjustments - N/A
E. Total adjustments 8,462,234 (C+D)
F. Appropriations limit for the year ending June 30, 2022 $ 147,186,126 (A+E) 3 363 of 369
City of Pinole
Notes to Appropriations Limit Schedule
For the year ending June 30, 2022
4 1. PURPOSE OF LIMITED PROCEDURES REVIEW
Under Article XIIIB of the California Constitution (the Gann Spending Limitation Initiative), California governmental agencies are restricted as to the amount of annual appropriations from proceeds of taxes.
Effective for years beginning on or after July 1, 1990, under Section 1.5 of Article XIIIB, the annual calculation of the appropriations limit is subject to this agreed upon procedures engagement.
2. METHOD OF CALCULATION
Under Section 10.5 of Article XIIIB, for fiscal years beginning on or after July 1990, the appropriations limit is required to be calculated based on the limit for the fiscal year 1986-1987, adjusted for the inflation and population factors discussed in Notes 3 and 4 below.
3. INFLATION FACTORS
A California governmental agency may use as its inflation factor either the annual percentage change in the 4th quarter per capita personal income (which percentage is supplied by the State Department of Finance), or the percentage change in the local assessment roll from the preceding year due to the change of local nonresidential construction. The factor adopted by the City of Pinole for the fiscal year 2021-2022 represents the percentage growth in the State of California per capita personal income.
4. POPULATION FACTORS
A California governmental agency may use as its population factor either the annual percentage change of the jurisdiction’s own population, or the annual percentage change in population in the County where the jurisdiction is located. The factor adopted by the City of Pinole for fiscal year 2021-2022 represents the population change for the County of Contra Costa during calendar year 2020.
5. OTHER ADJUSTMENTS
A California government agency may be required to adjust its appropriations limit when certain events occur, such as the transfer of responsibility for municipal services to, or from, another government agency or private entity. There were no adjustments made for the fiscal year ending June 30, 2022. 364 of 369
CITY COUNCIL 11D
REPORT
DATE: FEBRUARY 1, 2022
TO: MAYOR AND COUNCIL MEMBERS
FROM: MARKISHA GUILLORY, FINANCE DIRECTOR
SUBJECT: DEVELOPMENT PROCESS FOR THE FISCAL YEAR (FY) 2022/23
OPERATING AND CAPITAL BUDGET AND THE LONG-TERM
FINANCIAL PLAN
RECOMMENDATION
Staff recommends that the City Council approve the development process for the Fiscal Year (FY) 2022/23 Operating and Capital Budget and the Long-Term Financial Plan.
BACKGROUND
The City goes through an annual process of developing a budget for the upcoming fiscal year that covers July 1st through June 30th. The City’s budget development process is considered an “incremental” budget process, meaning that the budget for the upcoming year is developed based on the current year’s budget. In preparation for the upcoming fiscal year, staff prepares a budget development schedule that is used to guide the budget process.
City staff takes the following steps to create the Final Proposed budget:
• Finance Department uses the current budget, which incorporates any midyear changes approved by the City Council, as the starting point; • Finance Department creates a “baseline” budget by taking the ongoing revenues and expenditures included in the current budget and factoring in known or assumed changes to revenues and expenditures (i.e., forecasted changes to different revenue streams, general inflation, known changes to debt service, etc.);
• Departments review and confirm the known and assumed changes incorporated into the baseline budget;
• Departments submit requests for changes to the baseline budget to address proposed special projects or increased service levels; • Finance Department and City Manager consider department requests for changes to the baseline budget and prepare a Preliminary Proposed budget for the Finance Subcommittee’s consideration;
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City Council Report
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• Finance Department incorporates changes and prepares the Revised Proposed budget for the Finance Subcommittee’s consideration; • Finance Department and City Manager incorporation changes and submit the Final Proposed Budget to the City Council for adoption.
In spring 2021, prior to the development of the FY 2021/22 budget, the City created a long-term financial plan (LTFP). The LTFP is a forecasting and planning mechanism that identifies the major opportunities and challenges that the City is likely to face over the five-year time horizon and enables the City to proactively address opportunities and challenges through the annual budget process.
During adoption of the FY 2021/22 Operating and Capital Budget, the Council approved some specific appropriations requested by Council Members that were funded by unassigned fund balance (available reserve funds) in the General Fund and Measure S 2006 and 2014 Funds. That process was curtailed due to time constraints.
Staff is proposing a budget development process for FY 2022/23 that will provide an opportunity for Council Members to make specific budget requests earlier in the development process. Additionally, the City received funding from the federal government from the American Rescue Plan Act (ARPA). The Council allocated a portion of the funding in FY 2021/22 to meet some immediate needs of the community.
Plans for allocating the remaining funds will also be addressed through the FY 2022/23 budget process.
REVIEW AND ANALYSIS
Staff has prepared the following schedule of key dates and actions to guide development of the FY 2022/23 Operating and Capital Budget and the LTFP. As explained above, in addition to the normal development activities, the process will include developing the expenditure plan for the ARPA funding as well as considering Council Member requested initiatives.
February 15, 2022: Staff will propose mid-year adjustments to the FY 2021/22 budget.
The mid-year budget will serve as the baseline for the FY 2022/23 budget and the LTFP.
March – April 2022: Staff will organize a special City Council meeting to present information on the City’s current revenue streams, particularly local taxes. Staff will complete internal activities related to the development of the LTFP and FY 2022/23 budget. Activities will involve formulating revenue and expenditure assumptions, conducting budget meetings with the City Manager, Finance Director, and Department Heads to review department budgets and new requests, updating the five-year financial forecast, and preparing the preliminary LTFP and budget to be presented to the Finance Subcommittee.
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April 4 - 18, 2022: Staff will launch a survey to get input from the community and gauge its priorities for the LTFP and budget. Results of the survey will be shared with the City Council for its consideration.
April 14, 2022: Staff will present the Preliminary Proposed Long-Term Financial Plan, including the five-year financial forecast, to the Finance Subcommittee for review and direction. Staff will make updates to the plan based on Subcommittee direction.
April 26, 2022: Special City Council meeting (workshop) to review the Revised Proposed Long-Term Financial Plan. The meeting will also be an opportunity for Council Members to request that staff analyze potential new items for incorporation into the Preliminary Proposed budget.
May 5, 2022: Staff will present the Revised Proposed Long-Term Financial Plan, Preliminary Proposed FY 2022/23 Operating and Capital Budget, and Preliminary Proposed FY 2022/23 Five-Year Capital Improvement Plan (CIP) to the Finance Subcommittee for review and direction. Staff will make updates to the documents based on Subcommittee direction.
May 17, 2022: Staff will submit the Final Proposed Long-Term Financial Plan to the City Council for adoption.
May 25, 2022: Staff will present the Revised Proposed FY 2022/23 Operating and Capital Budget and Revised Proposed FY 2022/23 Five-Year Capital Improvement Plan (CIP) to the Finance Subcommittee for review and direction. Staff will incorporate any changes and prepare the final budget and CIP for Council adoption.
June 7, 2022: Staff will present the Revised Proposed FY 2022/23 Operating and Capital Budget and Revised Proposed FY 2022/23 Five-Year Capital Improvement Plan (CIP) to the City Council for review and direction. Staff will incorporate any changes and prepare the final budget and CIP for Council adoption.
June 21, 2022: Staff will submit the Final Proposed FY 2022/23 Operating and Capital Budget, the FY 2022/23 Five-Year Capital Improvement Plan (CIP), and the FY 2022/23 Appropriations Limit to the City Council for adoption. If the Council does not adopt the budget at this meeting, a special City Council meeting will need to be convened the following week.
The table below summarizes the proposed timeline and activities for the development process.
Date Action/Activity
February 15, 2022 City Council Meeting
• FY 2021/22 Mid-Year Budget Review
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February 1, 2022 4
Date Action/Activity
March – April 2022 Special City Council Meeting
• Presentation on revenue streams, particularly local
taxes
Internal Activities, including:
• Revenue and expenditure assumptions formulated
• Department budget meetings held
• Preliminary budget, CIP, and long-term financial plan prepared
April 4 – 18, 2022 Community Survey launched
April 14, 2022 Finance Subcommittee Meeting
• Preliminary Proposed Long-Term Financial Plan
April 26, 2022 Special City Council Meeting (Workshop)
• Revised Proposed Long-Term Financial Plan
• Council Member requested budget additions
May 5, 2022 Finance Subcommittee Meeting
• Revised Proposed Long-Term Financial Plan
• Preliminary Proposed FY 2022/23 Operating and
Capital Budget
• Preliminary Proposed FY 2022/23 Five-Year Capital
Improvement Plan (CIP)
May 17, 2022 City Council Meeting
• Adopt Final Proposed Long-Term Financial Plan
May 25, 2022 Finance Subcommittee Meeting
• Revised Proposed FY 2022/23 Operating and Capital
Budget
• Revised Proposed FY 2022/23 Five-Year Capital
Improvement Plan (CIP)
June 7, 2022 City Council Meeting
• Revised Proposed FY 2022/23 Operating and Capital
Budget
• Revised Proposed FY 2022/23 Five-Year Capital
Improvement Plan (CIP)
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February 1, 2022 5
Date Action/Activity
June 21, 2022 City Council Meeting
Adopt:
• Final Proposed FY 2022/23 Operating and Capital
Budget
• Final Proposed FY 2022/23 Five-Year Capital
Improvement Plan (CIP)
• FY 2022/23 Appropriations Limit
FISCAL IMPACT
There is no fiscal impact as a result of agenda item.
ATTACHMENTS
None
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