CITY OF PLEASANT HILL, CALIFORNIA
Report to Those Charged With Governance
For the Year Ended June 30, 2024
www.mgocpa.com
Macias Gini & O’Connell LLP
2121 N. California Boulevard, Suite 750
Walnut Creek, CA 94596 1
January 31, 2025
To the Honorable Mayor and Members
of the City Council of the City of Pleasant Hill
Pleasant Hill, California
We are pleased to present this report related to our audit of the governmental activities, the business type activities, each major fund, and the aggregate remaining fund information of the City of Pleasant Hill (City), as of and for the year ended June 30, 2024. This report summarizes certain matters required by professional standards to be communicated to you in your oversight responsibility for the City’s financial reporting process.
This report is intended solely for the information and use of the City Council and management, and is not intended to be, and should not be, used by anyone other than these specified parties. It will be our pleasure to respond to any questions you have about this report. We appreciate the opportunity to continue to be of service to the City.
Walnut Creek, California
2 TABLE OF CONTENTS
Required Communications 3
Exhibits
Exhibit A—Recent Accounting Pronouncements 8
3 REQUIRED COMMUNICATIONS
Auditing standards generally accepted in the United States of America (AU-C 260, The Auditor’s Communication With Those Charged With Governance) require the auditor to promote effective two-way communication between the auditor and those charged with governance. Consistent with this requirement, the following summarizes our responsibilities regarding the financial statement audits as well as observations arising from our audits that are significant and relevant to your responsibility to oversee the financial reporting process.
Our Responsibilities With Regard to the Financial Statement Audit Our responsibilities under auditing standards generally accepted in the United States of America and Government Auditing Standards issued by the Comptroller General of the United States have been described to you in our arrangement letter dated June 17, 2024. Our audit of the City’s financial statements does not relieve management or those charged with governance of their responsibilities, which are also described in that letter.
Overview of the Planned Scope and Timing of the Financial Statement Audits We conducted our audits consistent with the planned scope and timing in our arrangement letter dated June 17, 2024.
Accounting Policies and Practices
Preferability of Accounting Policies and Practices
Under accounting principles generally accepted in the United States of America, in certain circumstances, management may select among alternative accounting practices. In our view, in such circumstances, management has selected the preferable accounting practice.
Adoption of, or Change in, Accounting Policies
Management has the ultimate responsibility for the appropriateness of the accounting policies used by the City. A summary of the significant policies adopted by the City is included in Note 1 to the financial statements. As described in Note 1.N. to the financial statements, the following is a description of Governmental Accounting Standards board (GASB) Statements that the City implemented during the year:
GASB Statement No. 99 – Omnibus 2022
In April 2022, the GASB issued Statement No. 99, Omnibus 2022. The requirements related to financial guarantees and the classification and reporting of derivative instruments within the scope of statement 53 are effective for the City’s fiscal year ended June 30, 2024. Implementation of these requirements did not have a significant impact on the City’s financial statements for the fiscal year ended June 30, 2024.
GASB Statement No. 100 – Accounting Changes and Error Corrections – An Amendment of GASB Statement No. 62
The objective of this statement is to enhance accounting and financial reporting requirements for accounting changes and error corrections to provide more understandable, reliable, relevant consistent, and comparable information for making decisions or assessing accountability. The requirements of this statement are effective for the City’s fiscal year ending June 30, 2024. Implementation of these requirements did not have a significant impact on the City’s financial statements for the fiscal year ended June 30, 2024.
4 Significant Accounting Policies
We did not identify any significant accounting policies in controversial or emerging areas for which there is a lack of authoritative guidance or consensus.
Significant Unusual Transactions
We did not identify any significant unusual transactions.
Management’s Judgments and Accounting Estimates
Accounting estimates are an integral part of the preparation of financial statements and are based upon management’s current judgment. The process used by management encompasses their knowledge and experience about past and current events, and certain assumptions about future events. You may wish to monitor throughout the year the process used to determine and record these accounting estimates.
The following is summary information about the process used by management in formulating particularly sensitive accounting estimates and about our conclusions regarding the reasonableness of those estimates:
Significant Accounting Estimates
Measurement of
investments at fair value
The City’s investments are accounted for in accordance with the provisions of GASB Statement No. 72, Fair Value Measurement and Application, and accordingly, its fair value measurements are categorized within the fair value hierarchy established by the standard.
The following levels indicate the hierarchy of inputs used to measure fair value and the primary valuation methodologies used for financial instruments measured at fair value on a recurring basis:
o Level 1 – Investments whose values are based on quoted prices (unadjusted) for identical assets in active markets that a government can access at the measurement date.
o Level 2 – Investments whose values are based on inputs – other than quoted prices including prices included within level 1 – that are observable for an asset, either directly or indirectly.
o Level 3 – Investments whose values are based on
unobservable inputs for an asset and may require a degree of professional judgment.
All the City’s investments are measured using level 2 inputs, except for investments in California Local Agency Investment Fund, money market mutual funds, and equity mutual funds which are not subject to fair value hierarchy.
MGO compared investment values from quoted market information and using pricing applications and models obtained from custodian bank, fiscal agents or other sources and determined that they were reasonable. 5 Audit Adjustments and Uncorrected Misstatements
There were no corrected or uncorrected misstatements that were material to the financial statements.
Uncorrected misstatements or matters underlying these uncorrected misstatements could potentially cause future-period financial statements to be materially misstated, even if we have concluded that they uncorrected misstatements are immaterial to the financial statements under audit.
Departure From the Auditor’s Standard Report
There were no departures from the Auditor’s Standard Report.
Observations About the Audit Process
Disagreements With Management
We encountered no disagreements with management over the application of significant accounting principles, the basis for management’s judgments on any significant matters, the scope of the audit or significant disclosures to be included in the City’s financial statements.
Significant Accounting Estimates (Continued)
Depreciation and
amortization of capital
assets, including
depreciation/amortization
methods and useful lives
assigned to
depreciable/amortizable
property
Useful lives for depreciable capital assets were determined by management based on the nature of the capital asset. Depreciation was calculated based on the straight-line method.
MGO assessed the reasonableness of the useful lives based on the nature of the capital assets and performed substantive analytical procedures on depreciation expense and determined the estimates were reasonable.
Estimated allowance for
losses on notes and loans
receivable
The allowance for losses on notes and loans receivable was based on management’s estimate regarding the likelihood of collectability.
MGO assessed the reasonableness of the allowances based on the nature of the notes and loans receivable and performed substantive analytical procedures on the balances and determined the estimates were reasonable.
Accrual of compensated
absences
The accruals of compensated absences are based on accrued eligible hours of vacation and other compensated leave for eligible employees.
MGO assessed the reasonableness of the accrual based on the nature of the compensated absences and performed substantive analytical procedures on the balances and determined the accrual was reasonable.
Net pension liabilities,
contributions, expenses,
and other related balances
These balances are based on actuarial valuations performed by the California Public Employees’ Retirement System’s independent actuaries.
MGO agreed the calculations to the actuarial valuations developed through CalPERS and tested the reasonableness of allocations to various City funds.
6 Consultations With Other Accountants
We are not aware of any consultations management had with other accountants about accounting or auditing matters.
Significant Issues Discussed With Management
No significant issues arising from the audit were discussed or were the subject of correspondence with management.
Significant Difficulties Encountered in Performing the Audit We did not encounter any significant difficulties in dealing with management during the audit.
Shared Responsibilities for Independence
Independence is a joint responsibility and is managed most effectively when management, audit committees (or their equivalents), and audit firms work together in considering compliance with American Institute of Certified Public Accountants (AICPA) and Government Accountability Office (GAO) independence rules.
For MGO to fulfill its professional responsibility to maintain and monitor independence, management, the Board of Commissioners, and MGO each play an important role.
Our Responsibilities
1. AICPA and GAO rules require independence both of mind and in appearance when providing audit and other attestation services. MGO is to ensure that the AICPA and GAO’s General Requirements for performing non-attest services are adhered to and included in all letters of engagement.
2. Maintain a system of quality management over compliance with independence rules and firm policies.
The City’s Responsibilities
1. Timely inform MGO, before the effective date of transactions or other business changes, of the following:
a. New affiliates, directors, or officers.
b. Changes in the organizational structure or the reporting entity impacting affiliates such as subsidiaries, partnerships, related entities, investments, joint ventures, component units, and jointly governed organizations.
2. Provide necessary affiliate information such as new or updated structure charts, as well as financial information required to perform materiality calculations needed for making affiliate determinations.
3. Understand and conclude on the permissibility, prior to the City and its affiliates, officers, directors, or persons in a decision-making capacity, engaging in business relationships with MGO.
4. Not entering into arrangements of nonaudit services resulting in MGO being involved in making management decisions on behalf of the City.
5. Not entering into relationships resulting in close family members of MGO covered persons, temporarily or permanently acting as an officer, director, or person in an accounting, financial reporting or compliance oversight role at the City.
7 EXHIBIT A
Recent Accounting Pronouncements
8 RECENT ACCOUNTING PRONOUNCEMENTS
The following accounting pronouncements have been issued as of the date of this communication but are not yet effective and may affect the future financial reporting by the City.
Pronouncement Summary
GASB Statement No. 101,
Compensated Absences
The objective of this statement is to better meet the information needs of financial statement users by updating the recognition and measurement guidance for compensated absences. That objective is achieved by aligning the recognition and measurement guidance under a unified model and by amending certain previously required disclosures.
Statement No. 101 is effective for the City’s fiscal year ending June 30, 2025.
GASB Statement No. 102,
Certain Risk Disclosures
The objective of this statement is to provide users of government financial statements with essential information about risks related to a government’s vulnerabilities due to certain concentrations or constraints.
Statement No. 102 is effective for the City’s fiscal year ending June 30, 2025.
GASB Statement No. 103,
Financial Reporting Model
Improvements
The objective of this statement is to improve key components of the financial reporting model to enhance its effectiveness in providing information that is essential for decision making and assessing a government’s accountability.
This Statement also addresses certain application issues.
Statement No. 103 is effective for the City’s fiscal year ending June 30, 2026.
GASB Statement No. 104,
Disclosure of Certain
Capital Assets
The objective of this statement is to establish requirements for certain types of capital assets to be disclosed separately for purposes of note disclosures, and to establish requirements for capital assets held for sale and note disclosures for those capital assets.
Statement No. 104 is effective for the City’s fiscal year ending June 30, 2026.