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December 27, 2022
To the Honorable Mayor and Members of the City Council
City of San Marcos
San Marcos, California
We have audited the financial statements of the City of San Marcos, California, (the City) as of and for the year ended June 30, 2022 , and have issued our report thereon dated December 27, 2022. 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 May 9, 2022, our responsibility, as described by professional standards, is to form and express opinions about whether the financial statements that have been prepared by management with your oversight are presented fairly, in all material 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 fr ee 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 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 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.
735 E. Carneg ie Dr. Suite I 00
San Bernardino , CA 92408
909 889 087 1 T
909 889 536 1 F
r amscpa .net
PARTNERS
Terry P Shea. CPA
Scott W Manno. CPA. CGMA
Leena Shanbhag. CPA. MST. CGMA
Br·adferd A. Welebir. CPA. MBA. CGMA
Jenny W Liu. CPA. MST
Brenda L Odle. CPA. MST 1Parrner Emeritus I
MANAGERS / STAFF
Gar·denya Duran. CPA. CGMA
Br•ianna Schultz. CPA. CGMA
Seong-Hyea Lee. CPA. MBA
Evelyn Mor·entin-Barcena . CPA
Veronica Hernandez. CPA
Laura Arvizu. CPA
X rnlu Zoe Zhang. CPA. MSA
John Maldonado. CPA . MSA
Julia Rodr·iguez Fuentes. CPA. MSA
Demi Hrte. CPA
Jeffrey McKennan. CPA
MEMBERS
Arnel'ican Institute of
Cemfied Public Accountants
PCPS The A/CPA 1\/liance
{01 CPA F11ms
Governmental Audit
Quality Center
Employee Benefit Pion
Audrr Quo/it)' Center
California Socrety of
Certifred Publrc Accountants
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ROGERS , ANDERSON , MAL O DY & SCOTT , LLP
CERTIFIED PUBLIC ACCOUNTANTS. SINCE 1948
STAB ILITY. ACCURACY. T RUST.
To the Honorable Mayor and Members of the City Council December 27, 2022 City of San Marcos Page 2
Compliance with All Ethics Requirements Regarding Independence
The engagement team, others in our firm, and our firm have complied with all relevant ethical requirements regarding independence.
Significant Risks
We have identified the possibility of the following significant risks:
Management's override of internal controls over financial reporting : Management override of internal controls is the intervention 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 recognizing revenue is a presumed fr aud risk 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 deviations from generally accepted accounting principles which caused us to modify our audit 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 policies adopted by the City is included in Note 1 to the financial statements. The City adopted the GASB Statement No. 87, Leases, during fiscal year 2022. No matters have come to our attention that would require us, under professional standards, 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 assump tions about future events. Certain accounting estimates are particularly sensitive because of thei r significance to the financ ial 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:
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 determining that it is reasonable in relation to the financial statements taken as a whole.
Management’s estimate of depreciation expense is based on the useful lives of acquired assets. We evaluated the key factors and assumptions used to develop depreciation expense in determining that it is reasonable in relation to the financial statements taken as a whole.
To the Honorable Mayor and Members of the City Council December 27, 2022 City of San Marcos Page 3
Management’s estimate of claims payable is based on claims loss reports from third party claims management companies. We evaluated the key fact ors and assumptions used to develop the claims payable estimate in determining that is reasonable in relation to the financial statements taken as a whole.
The estimate of the net pension liability and the related deferred amounts is based on actuarial reports provided by independent actuaries. We evaluated the key 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 rela ted deferred amounts is based on actuarial reports provided by independent actuaries. We evaluated the key factors and assumptions used to develop the estimate in determining that it is reasonable in relation to the statements taken as a whole.
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:
The disclosure of fair value of investments in the notes to the financial statements represents amounts susceptible to market fluctuations.
The disclosure of capital assets ( and related accumulated depreciation) in the notes to the financial statements is based on historical in formation which could differ from actual useful lives of each capitalized item.
The disclosure of claims payable in the notes to the financial statements is based on claims loss reports from third party claims management companies. Actual future liabilities may vary from disclosed estimates.
The disclosure of net pension liability and the relate d deferred amounts in the notes to the financial statements is based on actuarial assumptions. Act ual future liabilities may vary from disclosed estimates.
The disclosure of net OPEB liability and the rela ted deferred amounts in the notes to the financial statements is based on actuarial assumptions. Act ual future liabilities may vary from disclosed estimates.
The financial statement disclosures are neutral, consistent, and clear.
Significant Difficulties Encountered during the Audit
We encountered no significant difficulties in dealing wi th management relating to the performance of the audit.
To the Honorable Mayor and Members of the City Council December 27, 2022 City of San Marcos Page 4
Uncorrected and Corrected Misstatements
For purposes of this communication, professional standards require us to accumulate all known and likely misstatements identified during the aud it, other than those that we belie ve are trivial, and communicate them to the appropriate level of management. Furthe r, 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. 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.
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, 2022.
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 ri sks of material misstatement. None of the matters discussed resulted in a condition to our retention as the City’s auditors.
Other Information in Included in Annual Reports
Pursuant to professional standards, our responsibilit y as auditors for other information in documents containing the City’s audited financial statements does not extend beyond the financial 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 ha ve applied certain limited procedures to the required supplementary information (RSI) that supplement s the basic financial statements. Our procedures consisted of inquiries of managem ent regarding the methods of prepari ng the information and comparing the information for consistency with management’s responses to our inquiries, the basic 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.
To the Honorable Mayor and Members of the City Council December 27, 2022 City of San Marcos Page 5
We were engaged to report on the supplementary information, which accompany the financial statements but are not RSI. With respect to this supplementary information, we made certain inquiries of management and evaluated the form, content, and methods of preparing the information to determine that the information complies with accounting principles generally accept ed in the United States of America, the method of preparing it has not changed from the prior period, and the information is appropriate and complete in relation to our audit of the financial statements. We compared and reconciled the supplementary information to the underlying accounting records used to prepare the financial statements or to the financial statements themselves.
Management is responsible for the introductory and statistical sections included in the annual comprehensive financial report but does not incl ude the financial statements and our auditor's report thereon. Our opinions on the financial statements do not cover the other information, and we do not express an opinion or any form of assurance thereon. In connec tion with our audit of the financial statements, our responsibility is to read the other information and consider whether a material inconsistency exists between the other information and the financ ial statements, or the other in formation otherwise appears to be materially misstated. If, based on the work perfor med, we conclude that an uncorrected material misstatement of the other information exists, we are required to describe it in our report.
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 wi th the information, or m anner of its presentation, appearing in the financial statements.
This information is intended solely for the use of t he 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.
San Bernardino, CA
December 27, 2022
Finance Department
December 27, 2022
Rogers, Anderson, Malody & Scott, LLP
735 E. Carnegie Drive, Suite 100
San Bernardino, California 92408
This representation letter is provided in connection with your audit of the financial statements of the City of San Marcos, California (the City), as of June 30, 2022, and for the year then ended, and the related notes to the financial statements, for the purpose of expressing opinions on whether the basic financial statements present fairly, in all material respects, the financial position, results of operations, and cash flows, where applicable, of the various opinion units of the City in accordance with accounting principles generally accepted for governments in the United States of America (U.S.
GAAP).
Certain representations in this letter are described as being limited to matters that are material. Items are considered material, regardless of size, if they involve an omission or misstatement of accounting information such that, in the light of surrounding circumstances, there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.
We confirm that, to the best of our knowledge and belief, having made such inquiries as we considered necessary for the purpose of appropriately informing ourselves as of December 27, 2022:
Financial Statements
We have fulfilled our responsibilities, as set out in the terms of the audit engagement dated May 9, 2022, for the preparation and fair presentation of the financial statements of the various opinion units referred to above in accordance with U.S. GAAP. We acknowledge our responsibility for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
We acknowledge our responsibility for the design, implementation, and maintenance of internal control to prevent and detect fraud.
We acknowledge our responsibility for compliance with the laws, regulations, and provisions of contracts and grant agreements.
We have reviewed, approved, and taken responsibility for the financial statements and related notes. We have a process to track the status of audit findings and recommendations.
2 We have identified and communicated to you all previous audits, attestation engagements, and other studies related to the audit objectives and whether related rec ommendations have been implemented.
Significant assumptions we used in making accounting estimates, including those measured at fair value, are reasonable.
All related party relationships and transactions have been appropriately accounted for and disclosed in accordance with the requirements of U.S. GAAP.
All events subsequent to the date of the financial statements and for which U.S. GAAP requires adjustment or disclosure have been adjusted or disclosed. The effects of all known actual or possible litigation, claims, and assessments have been accounted for and disclosed in accordance with U.S. GAAP.
All component units are included and related organizations are properly disclosed. All funds and activities are properly classified.
All funds that meet the quantitat ive criteria in GASB Statement No. 34, Basic Financial Statements— and Management's Discussion and Analysis—for State and Local Go vernments, GASB Statement No. 37, Basic Financial Statements—and Management's Discussion and Analysis—for State and Local Governments: Omnibus as amended, and GASB Statement No. 65 , I t e m s P r e v i o u s l y Reported as Assets and Liabilities, for presentation as major a re identified and presented as such and all other funds that are presented as major are considered important to financial statement users. All components of net position, nonspendable fund balance, and restricted, committed, assigned, and unassigned fund balance are properly classified and, if applicable, approved. Our policy regarding whether to first apply restricted or unre stricted resources when an expense is incurred for purposes for which both restricted and unrestricte d net position/fund balance are available is appropriately disclosed and net position/fund balance is properly recognized under the policy.
All revenues within the statement of activities have been properly classified as program revenues, general revenues, contributions to term or permanent endowments , or contributions to permanent fund principal.
All expenses have been properly classified in or allocated to functions and programs in the statement of activities, and allocations, if any, have been made on a reasonable basis. All interfund and intra-entity transactions and balances have been properly classified and reported. Deposit and investment risks hav e been properly and fully disclosed. Capital assets, including infrastructure assets, are properly capitalized, reported, and if applicable, depreciated.
All required supplementary information is measured and present ed within the prescribed guidelines.
City of San Marcos I 1 Civic Center Drive San Marcos, CA 92069 I (760) 744-1050 I www.san-marcos.net
3 With regard to investments and other instruments reported at f air value:
- The underlying assumptions are reasonable and they appropriate ly reflect management’s intent and ability to carry out its stated courses of action.
- The measurement methods and related assumptions used in determining fair value are appropriate in the circumstances and have been consistently applied. - The disclosures related to fair values are complete, adequate, and in accordance with U.S.
GAAP.
- There are no subsequent events that require adjustments to the fair value measurements and disclosures included in the financial statements.
With respect to nonattest services provided; the compilation o f various accounting schedules, including preparation of the financial statements, assistance i n the preparation of various reports, and preparation of State Controller Report, we have performed the following:
Made all management decisions and performed all management fun ctions; Assigned a competent individual to oversee the services; Evaluated the adequacy of the services performed;
Evaluated and accepted responsibility for the result of the service performed; and Established and maintained internal controls, including monito ring ongoing activities.
Information Provided
We have provided you with:
Access to all information, of which we are aware, that is rele vant to the preparation and fair presentation of the financial statements, such as records, documentation, and other matters. Additional information that you have requested from us for the purpose of the audit. Unrestricted access to persons within the City from whom you d etermined it necessary to obtain audit evidence.
i) A written acknowledgement of all the documents that we expec t to issue that will be included in the annual report and the planned timing and method of issuance of that annual report. ii) A final version of the annual report (including all the doc uments that, together, comprise the annual report) in a timely manner prior to the date of the auditor’s report. All transactions have been recorded in the accounting records and are reflected in the financial statements.
We have disclosed to you the results of our assessment of the risk that the financial statements may be materially misstated as a result of fraud.
We have no knowledge of any fraud or suspected fraud that affects the City and involves:
City of San Marcos I 1 Civic Center Drive San Marcos, CA 92069 I (760) 744-1050 I www.san-marcos.net
4 Management,
Employees who have significant roles in internal control, or Others where the fraud could have a material effect on the fin ancial statements. We have no knowledge of any allegations of fraud or suspected fraud affecting the City’s financial statements communicated by employees, former employees, regulators, or others. We have disclosed to you all known actual or possible litigation, claims, and assessments whose effects should be considered when preparing the financial state ments and the schedule of expenditures of federal awards.
We have disclosed to you the identity of the City’s related pa rties and all the related party relationships and transactions of which we are aware.
There have been no communications from regulatory agencies con cerning noncompliance with or deficiencies in accounting, internal control, or financial reporting practices. The City has no plans or intentions that may materially affect the carrying value or classification of assets and liabilities.
We have disclosed to you all guarantees, whether written or oral, under which the City is contingently liable.
We have disclosed to you all nonexchange financial guarantees, under which we are obligated and have declared liabilities and disclosed properly in accordance with GASB Statement No. 70, Accounting and Financial Reporting for Nonexchange Financial Gu arantees, for those guarantees where it is more likely than not that the entity will make a payment on any guarantee. We have disclosed to you all significant estimates and materia l concentrations known to management that are required to be disclosed in accordance with GASB Statement No. 62 (GASB- 62), Codification of Accounting and Financial Reporting Guidanc e Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements. Significant estimates are e stimates at the balance sheet date that could change materially within the next year. Concentrations refer to volumes of business, revenues, available sources of supply, or markets or geographic areas for which events could occur that would significantly disrupt normal finances within the next year. We have identified and disclosed to you the laws, regulations, and provisions of contracts and grant agreements that could have a direct and material effect on fina ncial statement amounts, including legal and contractual provisions for reporting specific activities in separate funds. There are no:
- Violations or possible violations of laws or regulations, or p rovisions of contracts or grant agreements whose effects should be considered for disclosure in the financial statements or as a basis for recording a loss contingency, including applicable budget laws and regulations. - Unasserted claims or assessments that our lawyer has advised are probable of assertion and must be disclosed in accordance with GASB-62.
City of San Marcos I 1 Civic Center Drive San Marcos, CA 92069 I (760) 744-1050 I www.san-marcos.net
5 - Other liabilities or gain or l oss contingencies that are required to be accrued or disclosed by GASB-62.
- Continuing disclosure consent decree agreements or filings wit h the Securities and Exchange Commission and we have filed updates on a timely basis in accordance with the agreements (Rule 240, 15c2-12).
The City has satisfactory title to all owned assets, and there are no liens or encumbrances on such assets nor has any asset or future revenue been pledged as collateral, except as disclosed to you. We have complied with all aspects of grant agreements and other contractual agreements that would have a material effect on the financial statements in the event of noncompliance.
Supplementary Information in Relation to the Financial Statements as a Whole
With respect to the City’s supplementary information:
We acknowledge our responsibility for the presentation of the supplementary information in accordance with U.S. GAAP.
We believe the supplementary information, including its form and content, is fairly presented in accordance with U.S. GAAP.
The methods of measurement and presentation of the supplementary information have not changed from those used in the prior period.
We have disclosed to you any significant assumptions or interpretations underlying the measurement and presentation of the supplementary information. We acknowledge our responsibility to include the auditor’s rep ort on the supplementary information in any document containing the supplementary inform ation and that indicates the auditor reported on such supplementary information.
We acknowledge our responsibility to present the supplementary information with the audited financial statements or, if the supplementary information will not be presented with the audited financial statements, to make the audited financial statements readily available to the intended users of the supplementary information no later than the date o f issuance by the City of the supplementary information and the auditor’s report thereon.
Required Supplementary Information
With respect to the required supplementary information accompanying the financial statements:
We acknowledge our responsibility for the presentation of the required supplementary information in accordance with U.S. GAAP.
We believe the required supplementary information, including its form and content, is measured and fairly presented in accordance with U.S. GAAP.
City of San Marcos I 1 Civic Center Drive San Marcos, CA 92069 I (760) 744-1050 I www.san-marcos.net • The methods of measurement or presentation have not changed from those used in the prior period.
• We have disclosed to you any significant assumptions or interpretations underlying the measurement and presentation of the supplementary information. • Arrangements with financial institutions involving compensating balances or other arrangements involving restrictions on cash balances, line of credit, or similar arrangements have been properly disclosed.
• We believe that the actuarial assumptions and methods used to measure pension and other postemployment benefit liabilities and costs for financial accounting purposes are appropriate in the circumstances .
• We do not plan to make frequent amendments to the City's pension or other postretirement benefit plans.
Signature: Signature:
Title: Finance Director Title:
City of San Marcos I 1 Civic Center Drive I San Marcos, CA 92069 I (760) 744-1050 I www.san-marcos .net