Lance, Soll & Lunghard, LLP 203N.BreaBlvd.,Suite 203 Brea,CA92821 Phone: 714.672.0022 January 21, 2022
To the Honorable Mayor and Members of the City Council
City of Santa Monica, California
We have audited the financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Santa Monica, California (the “City”) for the year ended June 30, 2021. Professional standards require that we provide you with information about our responsibilities under generally accepted auditing standards, Government Auditing Standards and the Uniform Guidance, as well as certain information related to the planned scope and timing of our audit. We have communicated such information in our letter to you dated July 22, 2021. Professional standards also require that we communicate to you the following information related to our audit.
Significant Audit Findings and Other Issues
Qualitative Aspects of Significant Accounting Practices Management is responsible for the selection and use of appropriate accounting policies. The significant accounting policies used by the City are described in the notes to the financial statements. As described in Notes 1 and 20 to the financial statements, the City changed accounting policies related to accounting for fiduciary activities by adopting Statement of Governmental Accounting Standards (GASB Statement) No. 84, Fiduciary Activities, in the fiscal year ended June 30, 2021. Accordingly, the cumulative effect of the accounting change as of the beginning of the year is reported in the Statement of Changes in Fiduciary Net Position. We noted no transactions entered into by the City during the year for which there is a lack of authoritative guidance or consensus. All significant transactions have been recognized in the financial statements in the proper period.
Accounting estimates are an integral part of the financial statements prepared by management and are based on management’s 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 significantly from those expected. The most sensitive estimates affecting the governmental activities’, business-type activities’, and proprietary funds’ respective financial statements were:
Management’s estimates of its net pension liability, net other post-employment benefits (OPEB) liability, and self-insurance liability are based on actuarial valuation specialist assumptions. We evaluated the key factors and assumptions used to develop the net pension liability, net OPEB liability, and self-insurance liability to determine that they are reasonable in relation to the financial statements taken as a whole.
Certain financial statement disclosures are particularly sensitive because of their significance to financial statement users. The most sensitive disclosures affecting the financial statements were:
The disclosure of Commitments and Contingencies in Note 14 to the financial statements identifies the litigation of the City regarding allegations of sexual abuse of minors and the settlement reached by the City with the plaintiffs in the amount of $60.6 million, as well as insurance recoveries attempting to be made by the City with its insurance providers.
To the Honorable Mayor and Members of the City Council
City of Santa Monica, California
The disclosure regarding the COVID-19 Pandemic in Note 18 to the financial statements describes the ongoing effect the pandemic is having on the City and the Federal coronavirus emergency acts funding the City has received in response to mitigate the challenges posed by the ongoing pandemic.
The financial statement disclosures are neutral, consistent, and clear.
Significant Unusual Transactions
Management is responsible for the policies and practices used to account for significant unusual transactions. No significant unusual transactions have occurred during fiscal year 2020-2021.
Difficulties Encountered in Performing the Audit
We encountered no significant difficulties in dealing with management in performing and completing our audit.
Corrected and Uncorrected Misstatements
Professional standards require us to accumulate all known and likely misstatements identified during the audit, other than those that are trivial, and communicate them to the appropriate level of management. No misstatements were found.
Disagreements with Management
For purposes of this letter, a disagreement with management is a financial accounting, reporting, or auditing matter, whether or not resolved to our satisfaction, that could be significant to the financial statements or the auditor’s report. We are pleased to report that no such disagreements arose during the course of our audit.
Circumstances that Affect the Form and Content of the Auditor’s Report New auditing standards were implemented in fiscal year 2020-2021 related to Statement of Auditing Standards 134, Auditor Reporting and Amendments, Including Amendments Addressing Disclosures in the Audit of Financial Statements, through Statement of Auditing Standards 140, Supplementary Information in Relation to the Financial Statements as a Whole. These standards updated the form and content of the financial statement auditor’s report. The purpose of the change was to present an easier format for users to understand the results of the audit and management’s responsibilities.
Management Representations
We have requested certain representations from management that are included in the management representation letter dated January 21, 2022.
Management Consultations with Other Independent Accountants In some cases, management may decide to consult with other accountants about auditing and accounting matters, similar to obtaining a “second opinion” on certain situations. If a consultation involves application of an accounting principle to the City’s financial statements or a determination of the type of auditor’s opinion that may be expressed on those statements, our professional standards require the consulting accountant to check with us to determine that the consultant has all the relevant facts. To our knowledge, there were no such consultations with other accountants.
To the Honorable Mayor and Members of the City Council
City of Santa Monica, California
Other Audit Findings or Issues Discussed with Management We generally discuss a variety of matters, including the significant events or transactions that occurred during the year, business conditions affecting the City and business plans and strategies that may affect the risks of material misstatements, the application of accounting principles and auditing standards, with management each year prior to retention as the City’s auditors. However, these discussions occurred in the normal course of our professional relationship and our responses were not a condition to our retention.
Other Matters
We applied certain limited procedures to Management’s Discussion and Analysis; the Schedules of Revenues, Expenditures, and Changes in Fund Balance – Budget and Actual for the General Fund, Special Revenue Source Fund, and Low and Moderate Income Housing Fund; the Schedules of Changes in the Net Pension Liability and Related Ratios; the Schedules of Contributions for the Pension Plans and OPEB; and the Schedule of Changes in the Net OPEB Liability and Related Ratios which are 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 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.
We were engaged to report on the combining and individual fund statements and schedules, 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 accepted 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.
We were not engaged to report on the Introductory or Statistical Sections of the Annual Comprehensive Financial Report, which accompany the financial statements but are not RSI. Such information has not been subjected to the auditing procedures applied in the audit of the basic financial statements, and accordingly, we do not express an opinion or provide any assurance on them.
The following new Governmental Accounting Standards Board (GASB) pronouncements were effective for fiscal year 2020-2021 audit:
GASB Statement No. 84, Fiduciary Activities.
GASB Statement No. 90, Majority Equity Interests - an Amendment of GASB Statement Nos. 14 and 61.
GASB Statement No. 98, the Annual Comprehensive Financial Report.
The following GASB pronouncements are effective in the following fiscal years’ audits and should be reviewed for proper implementation by management:
Fiscal year 2022
GASB Statement No. 87, Leases.
To the Honorable Mayor and Members of the City Council
City of Santa Monica, California
GASB Statement No. 89, Accounting for Interest Cost Incurred before the End of a Construction Period.
GASB Statement No. 97, Certain Component Unit Criteria, and Accounting and Financial Reporting for Internal Revenue Code Section 457 Deferred Compensation Plans.
Fiscal year 2023
GASB Statement No. 91, Conduit Debt Obligations.
GASB Statement No. 94, Public-Private and Public-Public Partnerships and Availability Payment Arrangement.
GASB Statement No. 96, Subscription-Based Information Technology Arrangements.
Restriction on Use
This information is intended solely for the 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,
Brea, California