City of Rialto
Rialto, California
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
For the Year Ended June 30, 2025
City of Rialto
Table of Contents
Page
Independent Auditor’s 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 ................................................................................................. 1
Schedule of Findings and Responses:
Material Weakness:
Finding 2025-001 – Internal Control over Financial Reporting – Financial Review, Deficit Net Position/Fund Balances, Fund Classification, and Restatement due to Error Corrections ................................................................................................................. 3
Significant Deficiency:
Finding 2025-002 – Internal Control over Personnel Action Form Processing ....................................................... 7
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6 Hutton Centre Drive, Suite 1200
Santa Ana, California 92707
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
Independent Auditor’s Report
Honorable Mayor and Members of the City Council
of the City of Rialto
Rialto, 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 (“ Government Auditing Standards”) , the financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Rialto, California (the “City”), as of and for the year ended June 30, 2025, a nd the related notes to the basic financial statements, which collectively comprise City’s basic financial statements and have issued our report thereon dated March 26, 2026.
Report on Internal Control over Financial Reporting
In planning and performing our audit of the financial statements, we considered City’s inte rnal 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 City’s internal control. Accordingly, we do not express an opinion on the effectiveness of the City’s internal control.
Our consideration of internal control was for the limited purpose described in the preceding paragraph 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. However, as described in the accompanying schedule of findings and questioned costs, we identified certain deficiencies in internal control that we consider to be material weaknesses and significant deficiencies.
A deficiency in internal control exis ts 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 ma terial misstatement of the entity’s financial statements will not be prevented, or detected and corrected, on a timely basis. We consider the deficiencies described in the accompanying schedule of findings and responses as item 2025-001 to be a material weakness.
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 attenti on by those charged with governance. We consider the deficiencies described in th e accompanying schedule of findings and r esponses as item 2025-002 to be a significant deficiency.
Honorable Mayor and Members of the City Council
of the City of Rialto
Rialto, California
2 Report on Compliance and Other Matters
As part of obtaining reasonable assurance about whether City’s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contr acts, 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 instances of noncompliance or other matters that are required to be reported under Government Auditing Standards and which are described in the accompanying schedule of findings and responses as item 2025-001.
The City’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 questioned costs. The City’s response was not subjected to the auditing procedures applied in the audit of the financial statements and, accordingly, we express no opinion on it.
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.
Santa Ana, California
March 26, 2026
City of Rialto
Schedule of Findings and Responses
For the Year Ended June 30, 2025
3 Finding 2025-001 Internal Control over Financial Repo rting – Financial Statement Account Review, Deficit Net Position/Fund Balances, Fund Classification, and Restatements due to Error Corrections
Criteria:
Management is responsible for the prep aration and fair presentation of its fina ncial statements, including disclosures, in accordance with accounting principles generally accepted in the United States of America. This includes the design, implementation, and maintenance of inte rnal control relevant to the prepara tion and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. As part of this responsibility, management should ensure that general ledger accounts are analyzed and reviewed, bank reconciliations are prepared and approved timely, reconciling items are investigated and resolved, and financial information is complete, accurate, and supported at year-end.
Generally accepted auditing standards define internal control as a process – affected by those charged with governance, management, and other personnel – designed to provide reasonable assurance regarding the achievement of objectives in the following categories:
Reliability of financial reporting
Effectiveness and efficiency of operations
Compliance with applicable laws and regulations
The Committee of Sponsoring Organizations of the Tread way Commission (“COSO”) established the following framework that stresses the need for policies and procedures to promote effective internal control for an entity:
Control Environment – Establish structures, reporting lines, authorities, and responsibilities Risk Assessment – Select and develop control activities that mitigate risks Control Activities – Deploy control activities through policies and procedures Information and Communication – Communicate internal control information internally Monitoring – Evaluations are used to determine if controls are present and functioning
An overall purpose of internal control over financial reporting is to foster the preparation of reliable financial statements.
This includes ensuring that financial information is materially accurate, accounts are properly reconciled, and balances are supported and reviewed on a timely basis.
GASB Statements No. 34, Basic Financial Statements—and Management’s Discussion and Analysis—for State and Local Governments, and No. 54 , Fund Balance Reporting and Govern mental Fund Type Definitions , require governments to report funds based on the nature of the underlying activities, the sources and sustainability of financing, and the existence of ongoing operations. Special Revenue Funds must be supported by substantial and continuing restricted revenue sources, and Proprietary Funds should reflect activities financed and operated in a manner similar to private enterprises. Governments are required to periodically reassess fund classifications to ensure that inactive or completed programs are not inappropriately maintained for financial reporting purposes.
A sound government should adopt rigorous policies, for all operating funds, aimed at achieving and maintaining a structurally balanced budget and avoi d operating deficit for each fund. The po licy should include parameters for achieving and maintaining structural balance where recurring revenues are equal to recurring expenditures.
Internal Service Funds are permitted to be used “to report any activities that provide goods or services to other funds, departments on a cost-reimbursement basis.”
City of Rialto
Schedule of Findings and Responses (Continued)
For the Year Ended June 30, 2025
4 Finding 2025-001 Internal Control over Financial Repo rting – Financial Statement Account Review, Deficit Net Position/Fund Balances, Fund Classification, and Restatements due to Error Corrections (Continued)
Condition:
During the audit, we noted certain areas where the City’s internal control processes over financial reporting could be further strengthened to help ensure that financial information is complete, accurate, and supported at year-end.
Cash Reconciliation and Old Outstanding Reconciling Items
During our audit, we noted th at certain reconciling items w ithin the City’s cash and bank reconciliations have not yet been fully resolved and remain under review. Specifically, the payroll bank reconciliation reflected a variance, as the total of reconciling items did not agree when recalculated, and certain reconciling items remain outstanding from prior fiscal years without supporting documentation. In addition, the Rialto Utility Authority bank reconciliation included items related to year-end journal entries that were recorded and reversed in subsequent period, for which the nature and resolution were not clearly documented in the reconcilia tion. Furthermore, the Gene ral Fund bank reconciliation included outstanding checks dating back to fiscal year 2023 th rough early of fiscal year 2025 that remained uncleared as of June 30, 2025, and documentation supporting their resolution or disposition had not yet been available.
General Ledger Review and Year-End Closing
During our audit, certain general ledger account balan ces unchanged for extended periods. These included accounts receivable balances, note payable, deferred inflows of resources related to grant activity, and interest-related accounts, which were identified by management as items requiring further review. In addition, differences between certain related accounts were noted and were not resolved as of year-end.
We also noted that the year-end close process did not include a complete review of all balance sheet accounts. As a result, there were accounts with stale balances.
Fund Balance and Net Position Monitoring
As of June 30, 2025, the City reported deficit for the following:
Governmental activities with $(45,532,003) unrestricted net position Business-type activities with $(70,214,350) unrestricted net position Workers’ Compensation Internal Service Fund with $(5,754,569) net position General Liability Internal Service Fund with $(5,246,726) net position Nonmajor governmental funds:
o Street Lighting and Landscape Maintenance Special Revenue Fund $(239,919) o Community Services Grants Special Revenue Fund $(9,104) o CDBG Special Revenue Fund $(275,125)
o Neighborhood Stabilization Program Special Revenue Fund ($35,670) o Fire Special Revenue Fund $(209,490)
o Transportation Development Act (TDA) Special Revenue Fund $(1,331,340) o Police Station Debt Service Fund $(4,155,387)
City of Rialto
Schedule of Findings and Responses (Continued)
For the Year Ended June 30, 2025
5 Finding 2025-001 Internal Control over Financial Repo rting – Financial Statement Account Review, Deficit Net Position/Fund Balances, Fund Classification, and Restatements due to Error Corrections (Continued)
Condition (Continued):
Fund Classification
During our review of the City’s financial statements, we noted that several funds were not periodically reassessed to determine whether their continued classification and financ ial presentation remained appropriate. These funds include the Airport Enterprise Fundas and several Special Revenue Funds with limited or no activities were identified for further review, including the Transportation Enhancements Special Revenue Fund, Fire Grant Special Revenue Fund, and Police Grants Special Revenue Fund. In addition, 2005 TABs Capital Projects Fund, 2008 TABs Capital Funds, and 1997 COP Debt Service Fund, are planned for further review. In addition, no pr oper fund classification on the Special Deposits Special Revenue Fund and Confiscated Speci al Revenue Fund to determine whether these funds are properly reported under GASB 54 guidance.
Error Corrections
The City previously reported unavailabl e revenue in certain governmental funds to defer long-term loans receivable rather than reporting the balance as restricted fund balan ce while the proceeds from the collection of these receivables is restricted in accordance with Gove rnmental Accounting Standard Board Statement (“GASBS”) No. 54 – Fund Balance Reporting and Governmental Fund Type Definitions.
The City previously expensed capital related expenditures instead of properl y capitalizing the Police Station related project.
See Note 16 to the Basic Financial Statements for details.
Cause:
The conditions noted above were primarily due to staffing challenges within the Finance Department which affected the City’s ability to consistently perform detailed reviews and analyses during th e financial close process. In addition, the City implemented a new financial system, which required significant time and resources for system conversion, data migration, and staff training.
Furthermore, financial close procedur es did not consistently include a t horough evaluation of all general ledger accounts, capital assets, fund balances, unavailable revenue, a nd fund classifications. This contributed to certain reconciling items, stale balances, and account discrepancies remaining staled at year-end as well as error corrections recorded during the year ended June 30, 2025.
The deficit in the governmental activities was mainly due to the recognition of net pension liability of $160,656,846 and net OPEB liability of $8,669,468. The deficit business-type activities was mainly due to the reporting of debt with concessionaire. The deficit fund balances in certain Special Revenue Funds were influe nced by timing differences between grant expenditures and related reimbursements; however, periodic monitoring and year-end evaluation of these funds could be further enhanced to assess reimbursemen t status, resolve long-standing balances, and confirm appropriate fund presentation. Similarly, deficits in the Workers’ Compensation and General Liability Internal Service Funds are attributable to the accrual of estimated clai ms and judgments and are subject to ongoing evaluation by management.
City of Rialto
Schedule of Findings and Responses (Continued)
For the Year Ended June 30, 2025
6 Finding 2025-001 Internal Control over Financial Repo rting – Financial Statement Account Review, Deficit Net Position/Fund Balances, Fund Classification, and Restatements due to Error Corrections (Continued)
Effect:
Certain general ledger accounts, reconciliations, and f und balances may require add itional review and follow ‑up to ensure they are fully supported and appropriately resolved at year‑end. Certain account balances and reconciling items may remain unsupported or uncleared at year-end, and financial reporting may no t fully reflect accurate or up-to-date information.
In addition, the deferral of review and resolution activities to subsequent periods may result in stale balances continuing until further analysis is completed. Fund balances and cl assifications may require add itional evaluation to confirm consistency with applicable standards. These matters may increase the level of effort required during the financial statement audit and related review processes.
Without properly reviewing fund type, it could be potentially in compliance with GASB 54.
Error corrections are reported to ensure that the financia l statements are properly presented in accordance with GASB Statements and properly capitalize capital related projects.
Recommendation:
We recommend the City review its current policies and procedures related to the financial close process to ensure they are sufficiently documented, consisten tly applied, and aligned with current operations and applicable accounting standards. This review should include procedures for cash and bank reconciliations, ge neral ledger account analysis, year-end capital asset analysis, fund balance and net pos ition monitoring, and periodic reassessment of fund classifications to ensure continued appropriateness of financial reporting.
We also recommend the City conduct more thorough review of new GASB Statements and related GASB implementation guide to prevent differences in interpretation that resulted in improper financial reporting.
Lastly, we recommend that the City evaluate the appropria te staffing levels and qualifi cations within the Finance Department to support timely and accura te financial reporting, including cons ideration of additional training and resources as needed.
View of Responsible Official:
The Finance Department is in the process of reviewing all procedures for the preparation of all reconciliations and account analysis. This includes reviewing GASB statemen ts, proper timing of accountin g functions and financial reporting. Within this review is an evaluation of the staffing and training of Finance Department personnel.
City of Rialto
Schedule of Findings and Responses (Continued)
For the Year Ended June 30, 2025
7 Finding 2025-002 Internal Control over Personnel Action Form Processing
Criteria:
Management is responsible for establishing and maintaining effective internal control and compliance over payroll and human resources processes to ensure that employee transacti ons are properly authorized, supported, and recorded in accordance with applicable policies, procedures, and regul atory requirements. This includes maintaining adequate documentation, ensuring proper approvals of personnel actions, and consistently applying established procedures across all departments.
Condition:
During our testing of payroll and human resources controls, we noted instances where Personnel Action Forms (PAFs) were not consistently prepared, maintained, or processed in a timely manner.
Specifically, out of 25 samples of payroll transactions tested, we noted the following:
In one instance, a PAF was not prepared to support an employee’s current employment status (e.g., paid administrative leave), and documentation was not available at the time of testing. In one instance, pay rate recorded in the payroll sy stem did not agree with the approved PAF (the employee should be at Step 5; however, the employee was paid at Step 4) due to PAF was not processed in a timely manner, resulting in discrepancies that were subsequently corrected through retroactive adjustments.
Cause:
The conditions noted above were primarily due to inconsistencies in the prepar ation, review, and processing of PAFs across departments. In addition, delays in the preparat ion and completion of PAFs by the Human Resources function contributed to personnel actions not being processed in a timely manner.
Effect:
There is an increased risk that payroll transactions may not be properly authorized, supported, or recorded in a timely manner. This may result in discrepanci es in employee compensation, reliance on retroactive adjustments, and an increased risk that errors or unauthorized changes may not be identified promptly.
Recommendation:
We recommend the City ensure complia nce with its established policies and pr ocedures related to the preparation, review, and timely processing of PAFs, so that all pe rsonnel actions are properly documented, approved, and implemented in a timely manner.
In addition, we recommend the City to strengthen its monitoring controls over PAF processing by implementing tracking mechanisms, periodic reviews, or supervisory ov ersight to ensure that PA Fs are completed accurately, processed timely, and maintained to support all payro ll-related changes. These procedures will help promote consistency, enhance compliance with established policies, and prevent reliance on retroactive payroll adjustments.
View of Responsible Official:
The City is in the process of implementing a system which ties the personnel system for Personal Action Forms created to the City’s Finance Department’s accounting system. This will allow for more complete handling of PAF’s on timely basis. This should eliminate these issues in the future.