City of Richmond
Presentation to City Council
January 25, 2022
Presented by: Ahmed Badawi, CPA
Partner
Badawi & Associates
Audit of the
City of Richmond
1 Agenda
Engagement Team
Deliverables and Scope of the Audit
Areas of Primary Emphasis
Auditors Report and Financial Statements
Required Communications
New Accounting Standards
Conclusion & Discussion/Questions
2 Engagement T eam
3 Engagement T eam
Engagement
Partner
Ahmed Badawi,
CPA
Engagement
Partner
Ahmed Badawi,
CPA
4 Audit Senior
Wenwei Zhao,
CPA
Audit Senior
Wenwei Zhao,
CPA
Professional
Audit Staff
Professional
Audit Staff
Professional
Audit Staff
Professional
Audit Staff
Professional
Audit Staff
Professional
Audit Staff
Independent
Quality Control
Reviewer
Mitesh Desai,
CPA
Independent
Quality Control
Reviewer
Mitesh Desai,
CPA
Deliverables and Scope of the Audit
Report of Independent Auditors on City of Richmond Annual Comprehensive Financial Report (ACFR)
Report on Internal Control Over Financial Reporting and on Compliance and Other Matters
Independent Auditor’s Report on Compliance with Requirements Applicable to Each Major Program and Internal Control over Compliance in Accordance with the Uniform Guidance (City and Housing Authority)
Report on Compliance with TDA
Report of Independent Auditors on the Joint Powers Financing Authority Basic Financial Statements
Report of Independent Auditors on the Housing Authority Basic Financial Statements Annual Report of Financial Transactions to the State Controller (City, Sewer District, JPFA and 3 non-CalPERS pension plans)
Agreed Upon Procedures
– Appropriations Limit
Communications With Those Charged With Governance
Letter used to summarize communication of various significant matters to those charged with governance.
5 Areas of Primary Audit Emphasis
The risk of management override of controls is addressed by the following procedures:
Assignment of audit staff based on consideration of audit risk.
Procedures to incorporate an element of unpredictability in the audit.
Consideration of the selection and application of significant accounting principles.
Examination of journal entries.
Review of accounting estimates for bias.
Evaluation of business rationale for unusual transactions.
Evaluation of the appropriateness of fraud
-related inquiries performed
Impact of the Shelter in place and remote work on the control environment Revenues & Receivables (Tax, Grants, Notes,
etc): Improper revenue recognitions
Governmental
Funds: Confirm/validate property taxes, sales taxes, franchise taxes & other significant revenues/receivables.
Proprietary
Funds: Substantive analytical procedures
Pension
and OPEB: Complex accounting treatment
Reviewed
management’s journal entries for implementing GASB 68 and GASB 75 Reconciled
amounts recorded to reports provided by CalPERS and their auditors 6 7
Auditors Report
Unmodified opinion except for RHA; Business
-Type
Activities; RHA RAD, LLC; RHA Properties; and RHA
Housing Corporation for which we disclaimed the opinion Audit performed in accordance with Generally Accepted
Auditing Standards, and Government Auditing Standards
Financial statements are fairly presented in all material respects
Significant accounting policies have been consistently
applied
Estimates are reasonable
Disclosures are properly reflected in the financial
statements
8 9
Government-Wide Financial Statements
10 Cash &
Investments Receivables Capital
Assets Other Assets
Deferred
Outflow of
Resources
2019 $170,968,330 $81,645,497 $489,051,276 $703,579 $62,541,674 2020 $176,433,577 $86,516,460 $487,201,965 $519,440 $97,099,816 2021 $217,722,975 $84,855,461 $487,930,997 $5,156,602 $88,738,534 $-
$100,000,000
$200,000,000
$300,000,000
$400,000,000
$500,000,000
Assets and Deferred Outflow of Resources
Government-Wide Financial Statements
Accounts
Payable and
Accrued
Expenses
Unearned
Revenues
Compensated
Absences Claims Liability Long-Term
Liabilities
Net Pension
Liability
Net OPEB
Liability
Deferred
Inflows of
Resources
2019 $16,161,809 $9,021,062 $13,288,238 $44,577,999 $475,149,404 $330,400,118 $193,782,442 $9,037,850 2020 $23,791,044 $8,521,940 $13,499,712 $43,240,367 $468,877,637 $340,483,031 $119,252,808 $63,554,454 2021 $30,606,689 $9,478,571 $13,317,044 $44,392,339 $441,820,728 $352,373,675 $103,801,398 $59,177,608 $-
$100,000,000
$200,000,000
$300,000,000
$400,000,000
$500,000,000
Liabilities and Deferred Inflows of Resources
11 Government-Wide Financial Statements
Net Investment in
Capital Assets Restricted Unrestricted
2019 $263,879,056 $102,598,887 $(652,986,509)
2020 $269,644,952 $95,221,061 $(598,315,748)
2021 $282,158,031 $117,261,612 $(569,983,126)
$(600,000,000)
$(500,000,000)
$(400,000,000)
$(300,000,000)
$(200,000,000)
$(100,000,000)
$-
$100,000,000
$200,000,000
$300,000,000
Net Position
12 Government-Wide Financial Statements
$(18,581,887)
$19,490,920
$65,193,656
$(30,000,000)
$(20,000,000)
$(10,000,000)
$-
$10,000,000
$20,000,000
$30,000,000
$40,000,000
$50,000,000
$60,000,000
$70,000,000
2019 2020 2021
Changes in Net Position
13 Government-Wide Financial Statements
2019 2020 2021
Net Cost of Service $191,223,098 $169,809,025 $144,815,928 Tax Revenue $168,396,325 $168,929,560 $186,596,334
$-
$20,000,000
$40,000,000
$60,000,000
$80,000,000
$100,000,000
$120,000,000
$140,000,000
$160,000,000
$180,000,000
$200,000,000
Net Cost of Service to Tax Revenue
14 GeneralFund
Expenditure Coverage
15 2019 2020 2021
Committed Fund Balance -$ 1,500,000$ 9,800,000$ Assigned Fund Balance 63,180 113,349 2,436,475 Unassigned Fund Balance 19,534,660 20,326,889 22,477,829 Total Unrestricted Fund Balance 19,597,840$ 21,940,238$ 34,714,304$ Total Expenditures 162,941,088$ 162,447,955$ 161,619,763$ Unrestricted Fund Balance as
a % of Total Expenditures 12.03% 13.51% 21.48%
Number of months 1 2 3
GFOA recommendation
Measure of City's ability to operate with no revenues using available fund balance.
No less than 2 months
Pension Plan
City’s Annual Pension Contributions
16 2019 2020 2021
Annual Pension
Contributions $30,699,619 $34,579,723 $37,010,104
$-
$5,000,000
$10,000,000
$15,000,000
$20,000,000
$25,000,000
$30,000,000
$35,000,000
$40,000,000
Pension Plan
17 CalPERS -
Miscellaneous
(7.15%)
CalPERS - Safety
(7.15%)
Police and
Firemen's
(3.50%)
General Pension
(1.00%)
Garfield Pension
(1.00%)
-1% $196,355,201 $305,868,453 $(3,942,720) $795,669 $86,811 % $134,637,439 $216,949,281 $(4,441,073) $715,046 $71,909 +1 $83,177,322 $143,617,664 $(4,891,344) $640,963 $58,184 $(50,000,000)
$-
$50,000,000
$100,000,000
$150,000,000
$200,000,000
$250,000,000
$300,000,000
$350,000,000
City’s Pension Plans Sensitivity to Discount Rate
Other Postemployment Benefits
City’s Annual OPEB Contributions
18 2019 2020 2021
Annual OPEB Contributions $6,797,458 $14,572,049 $10,544,567 $-
$2,000,000
$4,000,000
$6,000,000
$8,000,000
$10,000,000
$12,000,000
$14,000,000
$16,000,000
OPEB Plans
19 City Plan (5.75%) RPOA Plan (5.50%)
-1% $105,088,635 $15,893,234
% $90,804,849 $12,996,549
+1 $78,834,871 $10,610,378
$-
$20,000,000
$40,000,000
$60,000,000
$80,000,000
$100,000,000
$120,000,000
City’s OPEB Plans Sensitivity to Discount Rate
OPEB Plans
20 City Plan RPOA Plan
-1% $79,021,375 $11,122,153
% $90,804,849 $12,996,549
+1 $104,891,041 $15,503,624
$-
$20,000,000
$40,000,000
$60,000,000
$80,000,000
$100,000,000
$120,000,000
City’s OPEB Plans Sensitivity to Healthcare Trend Rate
21 Required Communications
Our Responsibility Under
U.S GAAS
• Opinion on whether financial
statements are fairly stated in
accordance with U.S GAAP
• Evaluate internal control over
financial reporting including tone
at the top
• Evaluate compliance with laws,
contract and grants
• Ensure financial statements are
clear and transparent
• Communicate with the governing
body
22 Management Responsibility
• Management is responsible for the
financial statements
• Establish and maintain internal control
over financial reporting
• Making all financial records available to
us
• Establish internal control to prevent
and detect fraud
• Inform us of all known and suspected
fraud
• Comply with laws and regulations
• Take corrective action on audit findings
Required Communications
Independence
Timing of the Audit
• It is our responsibility to maintain
independence
• We will maintain our independence by strict
adherence to the AICPA and the Board of
Accountancy rule
• Other than compiling the financial
statements, no other services performed that
could affect our independence
• Within the time frame communicated to the
City in our engagement letters
23 • GASB Statement No. 84
• GASB Statement No. 90
• GASB Statement No. 93
• GASB Statement No. 98
Significant Accounting
Policies and Unusual
Transactions
Required Communications
Management Judgment and
Accounting Estimates
Significant management estimates
impacting the financial statements
include the following:
• Useful lives of Capital Assets
• Investment valuations
• Pension Liability
• OPEB Liability
• Claim Liability
24 Sensitive Disclosures
• Summary of Significant Accounting
Policies
• Cash and Investments
• Capital Assets
• Pension Plan
• OPEB Plan
• COVID 19 Pandemic
Required Communications
Difficulties Encountered in
Performing the Audit None.
25 Significant Audit Adjustments and
Unadjusted Differences Considered
by Management to be Immaterial
Potential Effect on the Financial
Statements of Any Significant Risks
and Exposures
None.
No significant risks or exposures were
identified. Legal matters and potential
liabilities are disclosed in the financial
statements.
Disagreement with Management
None.
Required Communications
26 Deficiencies in Internal Control over
Financial Reporting
• City’s financial condition
• Large volume of unprocessed
invoices
• Delays in PAF submission and
approvals
• Segregation of duties in AP and
Payroll
• Grant Management
Required Communications
Representations Requested of
Management
Management Consultation with
Other Accountants
We obtained representations from management prior
to issuance of our reports.
We are not aware of any significant accounting or
auditing matters for which management consulted
with other accountants
27 Other Material Written
Communications
Material Uncertainties Related
to Events and Conditions
Fraud and Illegal Acts
Other than the engagement letters and
management representation letters, there have
been no other significant communications
There were no material uncertainties related to
events and conditions.
We have not become aware of any instances of
fraud or illegal acts, which was not disclosed by
the City
28 New Accounting Standards
2022
• GASB Statement No. 87 – Leases
• GASB Statement No. 89 – Construction-period interest
• GASB Statement No. 92– Omnibus (multiple effective date) • GASB Statement No. 93 – LIBOR removal and lease modifications • GASB Statement No. 97 - Certain Component Unit Criteria, and Accounting and Financial Reporting for Internal Revenue Code Section 457 Deferred Compensation Plans • GASB Statement No. 98 – The Annual Comprehensive Financial Report • Statement 91 – Conduit Debt Obligations
• Statement 94 – Public-private partnerships
• Statement 96 – Subscription-Based Information Technology Arrangements2023 Questions
Ahmed M. Badawi
[email protected]
29 Thank You
For Allowing Us to Provide Audit Services
to the City of Richmond
30