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March 29, 2024
To the Honorable City Council
City of San Bernardino
290 N. D Street
San Bernardino, CA 92401
We have audited the financial statements of the City of San Bernardino (the City) as of for t he year ended June 30, 2023, and have issued our report thereon dated March 29, 2024. 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 July 18, 2023, our responsibility, as described by prof essional standards, is to form and express opinions about whether the financial statements that have been prepared by management with your ov ersight are presented fairly, in all material respects, in accordance with accounting principles generally accepted in the United States of America. Ou r 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 re asonable, rather than absolute, assurance about whether the financial statements are free of material misstatement. An audit of financial st atements includes c onsideration of internal control over financial r eporting 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 City’s internal control over financial reporting. Accordingly, as part of our audit, 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 communica ting significant matters related to the audit that are, in our profe ssional judgment, relevant to your responsibilities in overseeing the fina ncial reporting process. However, we are not required to design proced ures 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.
The Honorable City Council
City of San Bernardino
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Compliance with All Ethics Requirements Regarding Independence
The engagement team, others in our firm, as appr opriate, and our firm have complied with all relevant ethical requirements regarding independence.
Significant Risks Identified
We have identified the following significant risks:
Management's override of internal controls over financial reporting – Management override of internal controls is the inte rvention by management in handling financial information and making decisions contrary to internal control policy.
Revenue recognition – Revenue recognition is a generally accepted accounting principle that refers to the conditions under which an entity can recognize a transaction as revenue. Auditing standards indicate that recogni zing revenue is a presumed fraud ri sk and usually classified as a significant risk in most audits.
These significant risks are presumptive in most audits and merit attention by the auditors due to the direct impact over financial reporting and internal control processes. Although identified as significant risks, we noted no matters of management override of controls or devi ations from generally accepted accounting principles wh ich caused us to modify our au dit procedures or any related matters which are required to be communicated to those charged with governance due to these identified risks.
Qualitative Aspects of the City’s Significant Accounting Practices
Significant Accounting Policies
Management has the responsibility to select and use appropriate accounting policies. A summary of the significant accounting polic ies adopted by the City is incl uded in Note 1 to the financial statements. As described in Note 1 to the fi nancial statements, the City has implemented Governmental Accounting Standards Board (GASB) Statement No. 96, Subscription Based IT Arrangements during the fiscal year. No matters have come to our attention t hat would require us, under professional standards, to inform you about (1 ) the methods used to a ccount for significant unusual transactions and (2) the effect of significant accounting policie s if controversial or emerging areas for which there is a lack of authoritative guidance or consensus.
Significant Accounting Estimates
Accounting estimates are an integr al part of the financial statem ents prepared by management and are based on management’s knowledge and ex perience about past and current events, and assumptions about future events. Certain accounti ng estimates are particularly sensitive because of their significance to the financial statements an d because of the possibilit y that future events affecting them may differ markedly of management’s current judgments.
The most sensitive accounting estimates affecting the City’s financial statements are:
Management’s estimate of fair market value of investments based on market values provided by outside sources. We evaluated the key factors and assumptions used to develop the fair market value of investments in determi ning that it is reasonable in re lation to the financial statements taken as a whole.
The Honorable City Council
City of San Bernardino
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Management’s estimate of depreciation expense is based on the usef ul lives of acquired assets.
We evaluated the key factors and assumpti ons used to develop depreciation expense in determining that it is reasonable in relation to the financial statements taken as a whole.
Management’s estimate of amortization of deferred inflows of resources related to leases is based on the remaining number of years of leas e terms. We evaluated the key factors and assumptions used to develop the es timated lease terms in determi ning that it is reasonable in relation to the financial statements taken as a whole.
Management’s estimate of claims payable is based on claims loss reports from third party claims management companies. We evaluated the key fa ctors and assumptions used to develop the claims payable estimate in deter mining that is reasonable in re lation to the financial statements taken as a whole.
The estimate of the net pensi on liability and the related deferr ed amounts is based on actuarial reports provided by independent actuaries. We evaluated the ke y factors and assumptions used to develop the estimate in determining that it is reasonable in relation to the statements taken as a whole.
The estimate of the net OPEB liability and the related deferred amounts is based on actuarial reports provided by independent actuaries. We evaluated the ke y factors and assumptions used to develop the estimate in determining that it is reasonable in relation to the statements taken as a whole.
Management’s estimate of lease and subscripti on liabilities, right-to-use assets, and asset amortization is based on present va lue calculations using certai n terms and assumptions in the agreements and estimated useful lives of assets in accor dance with generally accepted accounting principles. We evaluated the ke y factors and assumptions used to develop the related estimates in determining t hat it is reasonable in relation to the financial statements taken as a whole.
Financial Statement Disclosures
Certain financial statement discl osures involve significant judgm ent and are particularly sensitive because of their significance to fi nancial statement users. The most sensitive disclosures affecting the City’s financial statements relate to:
The disclosure of the fair value of investments in the notes to the financial statements represents amounts susceptible to market fluctuations.
The disclosure of capital assets , net, in the basic financial st atements is based on historical information which could differ from actual useful lives of each capitalized item.
The disclosure of net pension li ability and related deferred amounts in the notes to the financial statements is based on actuarial assumptions. Actual future liab ilities may vary from disclosed estimates.
The disclosure of net OPEB liability and rela ted deferred amounts in the basic financial statements is based on actuarial assumptions. Actual future liab ilities may vary from disclosed estimates.
The Honorable City Council
City of San Bernardino
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The disclosure of claims payabl e in the basic financial statem ents is based on claims loss reports from third party claims management compani es. Actual future liabilities may vary from disclosed estimates.
The disclosure of leases and subscription liabilities, right-to-use assets, and asset amortization in the basic financial statements is based on certain terms and assumptions in the agreements which could differ from actual amounts.
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 st andards require us to accumulate all known and likely misstatements identified dur ing the audit, other than those that we believe are trivial, and communicate them to the appropriate level of management. Further, professional standards require us to also communicate the effect of uncorrect ed 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. Management has corrected all identified misstatements.
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.
None of the misstatements identified by us as a result of our audit procedures and corrected by management were material, either individually or in the aggregate, to the financial statements taken as a whole or applicable oponion units.
Disagreements with Management
For purposes of this letter, professional standar ds define a disagreement with management as a matter, whether or not resolved to our satisfacti on, concerning a financial a ccounting, reporting, or auditing matter, which could be signifi cant to the City’s financial st atements or the auditor’s report.
No such disagreements arose during the course of the audit.
Representations Requested from Management
We have requested certain writt en representations from management, which are included in the attached letter dated March 29, 2024.
Management’s Consultations with Other Accountants
In some cases, management may decide to cons ult with other accountants about auditing and accounting matters. Management informed us that they have had consul tations with other accountants regarding auditing and a ccounting matters. Our opinion is not modified regarding this matter.
The Honorable City Council
City of San Bernardino
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Other Significant Matters, Findings, or Issues
In the normal course of our professional associatio n with the City, we genera lly discuss a variety of matters, including the application of accounting principles and auditi ng standards, significant events or transactions that occurred duri ng the year, operating and regulatory conditions affecting the City, 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.
Other Information Included in Annual Reports
Pursuant to professional standards, our responsibility as auditors fo r other information, 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 requir ed to perform any procedures to corroborate such other information. However, in accordance with such standards, we have:
Read the transmittal letter and statistical sectio n and considered whether su ch information, or the manner of its presentat ion, was materially inconsistent wi th its presentation in the financial statements.
Our responsibility also includes communicating to you any information which we believe is a material misstatement of fact. Nothing came to our attention that caused us to believe that such information, or its manner of presentation, is materially inconsistent with t he information, or manner of its presentation, appearing in the financial statements.
This report is intended solely for 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.
Very truly yours,
San Bernardino, California