Management’s estimate of the claims payable liabilities related to general self-insurance and workers’ compensation claims are based on internal data and City attorney consultation and reports prepared by third-party claims administrators. We evaluated the methods, assumptions, and data used to develop the claims payable liabilities and related disclosures in determining that it is reasonable in relation to the financial statements taken as a whole.
Financial statement disclosures
Certain financial statement disclosures are particularly sensitive because of their significance to financial statement users. The most sensitive disclosures affecting the financial statements were reported in:
Note 8 regarding the CalPERS defined benefit plans.
Note 9 regarding the City’s Other Postemployment Benefit Plan Note 10 regarding the City’s risk management and self-insurance program The financial statement disclosures are neutral, consistent, and clear.
Difficulties encountered in performing the audit
We encountered no significant difficulties in dealing with management in performing and completing our audit.
Uncorrected misstatements
Professional standards require us to accumulate all misstatements identified during the audit, other than those that are clearly trivial, and communicate them to the appropriate level of management. The attached schedule summarizes uncorrected misstatements of the financial statements. Management has determined that their effects are immaterial, both individually and in the aggregate, to the financial statements taken as a whole.
Uncorrected misstatements or the matters underlying uncorrected misstatements could potentially cause future-period financial statements to be materially misstated, even if management has concluded that the uncorrected misstatements are immaterial to the financial statements under audit.
Corrected misstatements
The following material and immaterial misstatements detected as a result of audit procedures were corrected by management:
Pension related deferred inflow of resources for government wide governmental activities was adjusted for an overstatement of approximately $1,467,000. Long-term debt for government wide governmental activities was adjusted for an overstatement of approximately $62,000.
Approximately $6,150,000 of completed capital projects were moved from construction in progress to various capital assets being depreciated categories. Cash and accounts payable were adjusted by approximately $461,000 to correct an overstatement in each account balance.
The net OPEB liability for the refuse fund was adjusted for an overstatement of approximately $419,000.
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Members of the City Council
City of Placentia
Other financing sources and capital outlay for the general fund were adjusted to correct an understatement in each account balance of approximately $1,299,000.
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 auditors’ report. No such disagreements arose during our audit.
Management representations
We have requested certain representations from management that are included in the management representation letter dated February 28, 2025.
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 entity’s financial statements or a determination of the type of auditors’ 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.
Significant issues discussed with management prior to engagement We generally discuss a variety of matters, including the application of accounting principles and auditing standards, with management each year prior to engagement as the entity’s auditors. However, these discussions occurred in the normal course of our professional relationship and our responses were not a condition to our engagement.
Other audit findings or issues
The following describes findings or issues arising from the audit that are, in our professional judgment, significant and relevant to your oversight of the financial reporting process:
We identified the following significant risk of material misstatement:
o Internal controls over financial close and reporting process are not functioning properly Maintenance and reconciliation of certain significant account balances is not occurring We have provided a separate letter to you dated February 28, 2025, communicating internal control related matters identified during the audit.
Required supplementary information
With respect to the required supplementary information (RSI) accompanying the financial statements, we made certain inquiries of management about the methods of preparing the RSI, including whether the RSI has been measured and presented in accordance with prescribed guidelines, whether the methods of measurement and preparation have been changed from the prior period and the reasons for any such changes, and whether there were any significant assumptions or interpretations underlying the measurement or presentation of the RSI. We compared the RSI for consistency with management’s responses to the foregoing inquiries, the basic financial statements, and other knowledge obtained during the audit of the basic financial statements. Because these limited procedures do not provide sufficient evidence, we did not express an opinion or provide any assurance on the RSI. 237
Members of the City Council
City of Placentia
Supplementary information in relation to the financial statements as a whole With respect to the combining and individual fund statements and schedules (collectively, the supplementary information) accompanying the financial statements, on which we were engaged to report in relation to the financial statements as a whole, we made certain inquiries of management and evaluated the form, content, 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 or the reasons for such changes, 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 have issued our report thereon dated February 28, 2025.
Other information included in annual reports
Other information (financial or nonfinancial information other than the financial statements and our auditors’ report thereon) is being included in your annual report and is comprised of the introductory and statistical sections. Our responsibility for other information included in your annual report does not extend beyond the financial information identified in our opinion on the financial statements. We have no responsibility for determining whether such other information is properly stated and do not have an obligation to perform any procedures to corroborate other information contained in your annual report.
We are required by professional standards to read the other information included in your annual report and consider whether a material inconsistency exists between the other information and the financial statements because the credibility of the financial statements and our auditors’ report thereon may be undermined by material inconsistencies between the audited financial statements and other information. If, based on the work performed, we conclude that an uncorrected material misstatement of the other information exists, we are required to describe it in our report. Our auditors’ report on the financial statements includes a separate section, “Other Information,” which states we do not express an opinion or any form of assurance on the other information included in the annual report. We did not identify any material inconsistencies between the other information and the audited financial statements.
* * *
This communication is intended solely for the information and use of the city council and management of the City of Placentia and is not intended to be, and should not be, used by anyone other than these specified parties.
CliftonLarsonAllen LLP
Irvine, California
February 28, 2025
238
Attachment
Description Assets
Deferred
Outflows of
Resources Liabilities
Deferred
Inflows of
Resources
Fund Balance /
Net Position
Net
Expense/Revenue
and Change in
Net Position /
Fund Balance
Describe all current year misstatements below.
Interest receivable on promissory notes 110,727$ (110,727)$ (110,727)$ Net current year misstatements (Iron Curtain Method)110,727 - - - (110,727) (110,727) Effect of prior year uncorrected misstatements on the
current year net income 205,383
Combined current and prior year misstatements
(Rollover Method)110,727$ -$ -$ -$ (110,727)$ 94,656$ Financial statement totals 207,524,363$ 13,060,378$ (108,367,127)$ (38,017,644)$ (74,199,970)$ 4,375,198$ Current year misstatement as a % of financial statement totals (Iron Curtain Method)0%0%-3%
Current and prior year misstatement as a % of financial statement totals (Rollover Method)0%0%2%
Debits/Credits - Amounts should be entered as debits (positive amounts) or credits (negative amounts). For example, increases to assets as debits, increases to liabilities as credits, decreases to net income as debits, and increases to net income as credits. Collapse this row (to the left) to print for attachment to management representation letter.
Year Ended June 30, 2024
SUMMARY OF UNCORRECTED MISSTATEMENTS - AUDIT
City of Placentia
Governmental Activities
Description Assets
Deferred
Outflows of
Resources Liabilities
Deferred
Inflows of
Resources
Fund Balance /
Net Position
Net
Expense/Revenue
and Change in
Net Position /
Fund Balance
Overstatement of interest income in FY 23/24 due to
accrued interest not being recorded at FYE 22/23.
Net current year misstatements (Iron Curtain Method)- - - - - - Effect of prior year uncorrected misstatements on the
current year net income 116,296
Combined current and prior year misstatements
(Rollover Method)-$ -$ -$ -$ -$ 116,296$
Financial statement totals 48,845,048$ -$ (6,809,580)$ (23,663,695)$ (18,371,773)$ 8,340,983$ Current year misstatement as a % of financial statement totals (Iron Curtain Method)#DIV/0!
Current and prior year misstatement as a % of financial statement totals (Rollover Method)#DIV/0!1%
General Fund
SUMMARY OF UNCORRECTED MISSTATEMENTS - AUDIT
Year Ended June 30, 2024
City of Placentia
239
Attachment
Description Assets
Deferred
Outflows of
Resources Liabilities
Deferred
Inflows of
Resources
Fund Balance /
Net Position
Net
Expense/Revenue
and Change in
Net Position /
Fund Balance
Interest receivable on promissory notes 29,599$ (29,599)$ Net current year misstatements (Iron Curtain Method)29,599 - - (29,599) - - Effect of prior year uncorrected misstatements on the
current year net income
Combined current and prior year misstatements
(Rollover Method)29,599$ -$ -$ -$ -$ -$
Financial statement totals 3,019,338$ (131,128)$ (509,148)$ (2,379,062)$ 2,095,884$ Current year misstatement as a % of financial statement totals (Iron Curtain Method)1% #DIV/0!6%
Current and prior year misstatement as a % of financial statement totals (Rollover Method)1% #DIV/0!
SUMMARY OF UNCORRECTED MISSTATEMENTS - AUDIT
City of Placentia
City Wide DIF
Year Ended June 30, 2024
Description Assets
Deferred
Outflows of
Resources Liabilities
Deferred
Inflows of
Resources
Fund Balance /
Net Position
Net
Expense/Revenue
and Change in
Net Position /
Fund Balance
Interest receivable on promissory notes 81,128$ (81,128)$ To adjust unavailable revenue and revenue for a
receivable received in the availability period.22,381 (22,381) (22,381) To record a prior period adjustment for a vehicle
purchase that was expensed in the prior year that should have been capitalized.(51,172)
Net current year misstatements (Iron Curtain Method)81,128 - - (58,747) (22,381) (73,553) Effect of prior year uncorrected misstatements on the
current year net income 51,172
Combined current and prior year misstatements
(Rollover Method)81,128$ -$ -$ (58,747)$ (22,381)$ (22,381)$ Financial statement totals 15,603,792$ -$ (16,269,186)$ (1,226,817)$ 1,892,211$ (711,566)$ Current year misstatement as a % of financial statement totals (Iron Curtain Method)1% #DIV/0!5%-1%10%
Current and prior year misstatement as a % of financial statement totals (Rollover Method)1% #DIV/0!5%-1%3%
SUMMARY OF UNCORRECTED MISSTATEMENTS - AUDIT
City of Placentia
Other Aggregate Funds
Year Ended June 30, 2024
240
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
Members of the City Council
City of Placentia
Placentia, 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 governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of City of Placentia (the City), as of and for the year ended June 30, 2024, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements, and have issued our report thereon dated February 28, 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 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 and therefore, material weaknesses or significant deficiencies may exist that were not identified.
We identified a deficiency in internal control, described in the accompanying schedule of findings and responses as item 2024-001 that we consider to be a material weakness.
CLA (CliftonLarsonAllen LLP) is an independent network member of CLA Global. See CLAglobal.com/disclaimer.
CliftonLarsonAllen LLP
CLAconnect.com
241
Members of the City Council
City of Placentia
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 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.
City of Placentia’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 accompanying schedule of findings and responses. The City’s response was not subjected to the other auditing procedures applied 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 effectiveness of the entity’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 entity’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose.
CliftonLarsonAllen LLP
Irvine California
February 28, 2025
242
Members of the City Council
City of Placentia
CITY OF PLACENTIA
SCHEDULE OF FINDINGS AND RESPONSES
YEAR ENDED JUNE 30, 2024
2024 – 001: Financial Close and Reporting
Type of Finding: Material Weakness in Internal Control Over Financial Reporting Condition: Audit procedures resulted in the discovery of misstatements, that if not corrected, would cause the City’s financial statements to be materially misstated.
Criteria or specific requirement: The City’s system of internal controls over financial close and reporting should be designed and functioning to prevent material misstatements to the City’s financial statements.
Effect: The following adjustments were recorded to correct the City’s financial statements. Pension related deferred inflow of resources for government wide governmental activities was adjusted for an overstatement of approximately $1,467,000. Long-term debt for government wide governmental activities was adjusted for an overstatement of approximately $62,000.
Approximately $6,150,000 of completed capital projects were moved from construction in progress to various capital assets being depreciated categories. Cash and accounts payable were adjusted by approximately $461,000 to correct an overstatement in each account balance.
The Net OPEB liability for the refuse fund was adjusted for an overstatement of approximately $419,000.
Other financing sources and capital outlay for the general fund were adjusted to correct an understatement in each account balance of approximately $1,299,000.
Cause:
The issues mentioned above were caused either by user error or the occurrence of a new scenario that had not been encountered previously. For the pension-related deferred inflows, an incorrect line item in the CalPERS reporting for the total instead of the employer portion was mistakenly included in the pension calculation. Additionally, as part of an agreement for constructing three billboards, the company responsible for the billboards made the full payment for the easement associated with one of the structures. As a result, the debt owed to the company was not included in the debt schedule, since the city had been reducing its payments to account for this. Initially, the TOD/Crowther project was not captured, as it was paid by the general fund through ARPA. However, it was later reclassified as a Sewer fund asset. The cash and accounts payable were overstated due to timing differences in the bank, which were carried forward into July. When the net OPEB liability was being calculated, a negative sign was accidentally omitted in the prior year’s ending balance. Finally, since the city did not have physical possession of an asset while it was being prepared for service, the financing source for the asset was not recorded initially.
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Members of the City Council
City of Placentia
Recommendation: We recommend that City management review is processes and procedures over its financial close and reporting to ensure that proper levels of review and reconciliation of all material account balances are completed.
Views of responsible officials and planned corrective actions:
The city will continue to develop a more comprehensive year-end checklist, incorporating the items mentioned above to prevent them from recurring. In addition, the city will ensure that only the employer's portion is included when calculating pension activity. The remaining easement debt has been added to the debt schedule and will remain listed until fully repaid. The city will also ensure that any future sewer projects are properly transferred from the general fund to the sewer fund if the general fund has contributed to the asset. As part of the year-end close, the city will make sure that any timing differences at the end of June are resolved. Before finalizing the workpapers, the amounts entered will be verified against the prior year's workpapers, and the backup will be included to ensure consistency.
Lastly, the city will review the start date of all debt service agreements, and if the start date is prior to June 30, it will require capital outlay and other financing sources to be properly accounted for. 244