Pomona, California
Auditor’s Communication with
Those Charged with Governance
For the year ended June 30, 2023
Attachment No. 2
January 11, 2024
To the Honorable Mayor and Members
of the City Council of the City of Pomona
Pomona, California
We have audited the financial statements of the City of Pomona (City) as of and for the year ended June 30, 2023 , and have issued our report thereon dated December 27, 2023. Professional standards require that we advise you of the following matters relating to our audit.
Our Responsibility in Relation to the Financial Statement Audit As communicated in our engagement letter dated March 20, 2023, our responsibility, as described by professional standards, is to form and express an opinion(s) about whether the financial statements t h a t h a v e b e e n p r e p a r e d b y m a n a g e m e n t w i t h y o u r o v e r s i g h t a r e p r e s e n t e d f a i r l y , i n a l l m a t e r i a l respects, in accordance with accounting principles generally accepted in the United States of America.
Our audit of the financial statements does not relieve you or management of your respective responsibilities.
Our responsibility, as prescribed by professional standards, is to plan and perform our audit to obtain reasonable, rather than absolute, assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control over financial reporting. Accordingly, as part of our audi t, we considered the internal control of the City solely for the purpose of determining our audit procedures and not to provide any assurance concerning such internal control.
We are also responsible for communicating significant matters related to the audit that are, in our professional judgment, relevant to your responsibilities in overseeing the financial reporting process.
However, we are not required to design procedures for the purpose of identifying other matters to communicate to you.
Planned Scope and Timing of the Audit
We conducted our audit consistent with the planned scope and timing we previously communicated to you.
Compliance with All Ethics Requirements Regarding Independence The engagement team, others in our firm, as ap propriate, our firm, and our network firms have complied with all relevant ethical requirements regarding independence.
To the Honorable Mayor and Members
of the City Council of the City of Pomona
Pomona, California
Significant Risks Identified
We have identified the following significant risks:
x Risk of Management Override of Internal Controls – A risk of management override of internal controls exists at any entity where management can change or decide not to perform that entity’s internal controls.
x Revenue Recognition Risk – Errors in revenue recognition can affect bond covenant ratios and the net position of the City.
Qualitative Aspects of the Entity’s Significant Accounting Practices Significant Accounting Policies
Management has the responsibility to select and use appropriate accounting policies. A summary of the significant accounting policies adopted by the City is included in Note 1 to the financial statements.
There have been no initial selection of accounting policies and no changes in significant accounting policies or their application during the year ended June 30, 2023. No matters have come to our attention that would require us, under professional standard s, to inform you about (1) the methods used to account for significant unusual transactions and (2) the effect of significant accounting policies in controversial or emerging areas for which there is a lack of authoritative guidance or consensus.
Significant Accounting Estimates
Accounting estimates are an integral part of the financial statements prepared by management and are based on management’s current judgments. Those judgments are normally based on 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 markedly from management’s current judgments.
The most sensitive accounting estimates affecting the financial statements are capital asset depreciation and useful life, and pension plan and other post-employment benefits (OPEB) plan assumptions.
Management’s estimate of capital assets depreciation and useful life, and pension and OPEB plan assumptions are based on historical useful lives of such assets, and actuarial assumptions, respectively. We evaluated the key factors and assu mptions used to develop the estimate of capital assets depreciation and useful life, and pension and OPEB plan assumptions and determined that they are reasonable in relation to the basic financial st atements taken as a whole and in relation to the applicable opinion units.
To the Honorable Mayor and Members
of the City Council of the City of Pomona
Pomona, California
Financial Statement Disclosures
Certain financial statement disclosures involve significant judgment and are particularly sensitive because of their significance to financial statement users. The most sensitive disclosures affecting the City’s financial statements relate to:
x Summary of Significant Accounting Policies
x Cash and Investments
x Long-term Debt
x Capital Assets
x Employee Retirement Plans
x Other Post-Employment Benefits
x Commitments and Contingencies
x Prior Period Adjustments
Significant Difficulties Encountered during the Audit
We encountered no significant difficulties in dealing with management relating to the performance of the audit.
Uncorrected and Corrected Misstatements
For purposes of this communication, professional standards also require us to accumulate all known and likely misstatements identified during the audit, other than those that we believe are trivial, and communicate them to the appropriate level of mana gement. Further, professional standards require us to also communicate the effect of uncorrected misstatements related to prior periods on the relevant classes of transactions, account balances or disclosures, and the financial statements as a whole and each applicable opinion unit. The attached sche dule summarizes uncorrected financial statement misstatements whose effects in the current and prior periods, as determined by management, are immaterial, both individually and in the aggregate, to the financial statements taken as a whole.
Uncorrected misstatements or matters underlying those uncorrected misstatements could potentially cause future-period financial statements to be materially misstated, even though the uncorrected misstatements are immaterial to the financial statements currently under audit.
In addition, professional standards require us to communicate to you all material, corrected misstatements that were brought to the attention of management as a result of our audit procedures.
The following material misstatements that we identi fied as a result of our audit procedures were brought to the attention of, and corrected by, management:
1) To record missing accrued interest for Series BJ bond for $3,106,810 as a prior period adjustment
To the Honorable Mayor and Members
of the City Council of the City of Pomona
Pomona, California
Disagreements with Management
For purposes of this letter, professional standards define a disagreement with management as a matter, whether or not resolved to our satisfaction, concerning a financial accounting, reporting, or auditing matter, which could be significant to the City’s financial statements or the auditor’s report. No such disagreements arose during the course of the audit.
Representations Requested from Management
We have requested certain written representations from management, which are included in the attached letter dated December 27, 2023.
Management’s Consultations with Other Accountants
In some cases, management may decide to consult with other accountants about auditing and accounting matters. Management informed us that, and to our knowledge, there were no consultations with other accountants regarding auditing and accounting matters.
Other Significant Matters, Findings, or Issues
In the normal course of our professional association with the City, we generally discuss a variety of matters, including the application of accounting principles and auditing standards, significant events or transactions that occurred during the year, operating and regulatory conditions affecting the entity, and operational plans and strategies that may affect the risks of material misstatement. None of the matters discussed resulted in a condition to our retention as the City’s auditors.
Required Supplementary Information
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 ba sic 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.
Supplementary Information
We were engaged to report on the combining and individual nonm ajor fund financial statements and budgetary comparison schedules which accompany the financial statements but are not RSI. With respect to this supplementary information, we made certai n 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, and the informatio n is appropriate and complete in relation to our audit of the financial statements. We compared an d reconciled the supplementary information to the To the Honorable Mayor and Members
of the City Council of the City of Pomona
Pomona, California
underlying accounting records used to prepare the financial statements or to the financial statements themselves.
Other Information Included in the Annual Reports
Pursuant to professional standards, our responsibili ty as auditors for the introductory and statistical sections, whether financial or nonfinancial, included in the City’s annual report, does not extend beyond the information identified in the audit report, and we are not required to perform any procedures to corroborate such other information. However, in accordance with such standards, we have read the information and considered whether such information, or the manner of its presentation, was materially inconsistent with its presentation in the financial statements.
Our responsibility also includes communicating to yo u any information which we believe is a material misstatement of fact. Nothing came to our attention th at caused us to believe th at such information, or its manner of presentation, is materially inconsistent with the information, or manner of its presentation, appearing in the financial statements.
Existence of a Material Misstatement that Affects the Financial Statements of a Prior Period in Which There Was a Predecessor Auditor
We have identified the existence of a material misstatement that affects the prior period financial statements on which the predecessor auditor had previously reported without modification.
The City did not accrue interest on the Series BJ bond in the financial statements of fiscal year 2022, and the City corrected the material misstatement by posting a prior period adjustment in fiscal year 2023.
This report is intended solely fo r 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.
Badawi & Associates, CPAs
Berkeley, California
January 11, 2024
To the Honorable Mayor and Members
of the City Council of the City of Pomona
Pomona, California
Uncorrected Misstatements
Fund Account Description Debit Credit
To reclass the collateralized borrowing as unearned revenue General Fund Unearned Revenue (2,965,309.00)
General Fund Fund Balance 2,965,309.00
General Fund Unearned Revenue 174,000.00
General Fund Revenue (174,000.00)
Governmental Activities Other Long-term Debt 2,905,597.00 Governmental Activities Unearned Revenue (2,791,309.00) Governmental Activities Revenue (114,288.00)
Total 6,044,906.00 (6,044,906.00)