Measure M
Strong Communities Fund
of the City of Stockton
Stockton, California
Financial Statements and
Independent Auditors’ Reports
For the Year Ended June 30, 2021
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City of Stockton
Measure M Strong Communities Fund
For the Year Ended June 30, 2021
Table of Contents
Page
FINA
NCIAL SECTION
Independent Auditors’ Report on the Financial St
atements ...................................................................................... 1 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 ................................................................................................. 3 Basic Financial Statements:
Balance Sheet ...................................................................................................................................................... 7 Statement of Revenues, Expenditures, and Changes in Fund Balance ................................................................ 8 Notes to the Basic Financial Statements ............................................................................................................ 11 Required Supplementary Information (Unaudited):
Budgetary Information:
Budget Process .................................................................................................................................................. 17 Budget Basis of Accounting .............................................................................................................................. 17 Schedule of Revenues, Expenditures, and Changes in Fund Balance – Budget and Actual ............................. 18
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FINANCIAL SECTION
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INDEPENDENT AUDITORS’ REPORT
To the Honorable Mayor and Members of the City Council
of the City of Stockton
Stockton, California
Report on Financial Statements
We have audited the accompanying financial statements of the Measure M Strong Communities Fund (the “Fund”) of the City of Stockton, California (the “City”), which compri se the balance sheet as of June 30, 2021, and the related statement of revenues, expenditures, and changes in fund bala nce for the year then ended, and the related notes to the fund financial statements.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the prepara tion and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these financia l statements based on our audit. We conducted our audit in accordance with 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. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit ev idence about the amounts and disclosures in the financial statements. The procedures selected depend on the audito r’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design 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. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting polic ies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is su fficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements referred to above pr esent fairly, in all material respects, the financial position and result of operations and changes in fund balance of the Fund of the City, as of and for the year ended June 30, 2021 in accordance with accounting principles generally accepted in the United States of America. 200 E. Sandpointe Ave., Suite 600, Santa Ana, California 92707 Tel: 949-777-8800 • Fax: 949-777-8850
www.pungroup.cpa
3939352 Pun & McGeady_L_final.pdf 2 1/14/14 3:48 PM
ATTACHMENT C
To the Honorable Mayor and Members of the City Council
of the City of Stockton
Stockton, California
2 Emphasis of Matter
As discussed in Note 1, the financial statements presen t only the balance sheet and the statement of revenues, expenditures and changes in fund balance of the Fund and do not purport to, and do not present fairly the financial position of the City as of June 30, 2021, the changes in its financial position, or, where applicable, its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. Our opinion is not modified with respect to this matter.
Other Matters
Required Supplementary Information
Accounting principles generally accepted in the United St ates of America require that the Budgetary Comparison Schedules – Measure M Strong Communities Fund on page 18 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic , or historical context. We have applied certain limited procedures to the required supplementary information in acco rdance with auditing standards generally accepted in the United States of America, which consisted of inquiri es of management about the methods of preparing the information and comparing the informa tion 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 do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.
Management has omitted Management’s Discussion and Analysis that accounting principles generally accepted in the United States of America require to be presented to s upplement the basic financial statements. Such missing information, although not a part of the basic financial statements, is required by th e Governmental Accounting Standards Board, who considers it to be an essential part of the financial reporting for placing the basic financial statements in an appropriate operati onal, economic, or historical contex t. Our opinion on the basic financial statements is not affected by this missing information.
Other Reporting Required by Government Auditing Standards
In accordance with Government Auditing Standards , we have also issued our re port dated March 4, 2022, on our consideration of the City’s internal control over Fund’s financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is solely to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the effec tiveness of the City’s internal control over Fund’s financial reporting or on compliance. That report is an integr al part of an audit performed in accordance with Government Auditing Standards in considering the City’s internal control over financial reporting and compliance.
Santa Ana, California
March 4, 2022
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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 Auditors’ Report
To the Honorable Mayor and Members of the City Council
of the City of Stockton
Stockton, California
We have audited, in accordance with the auditing standa rds 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, the financial statements of the Measure M Strong Communities Fund (the “Fund”) of the City of Stockton, California (the “City”), which comprise the balance sheet as of June 30, 2021 and the related statement of revenues, expenditures, and changes in fund bala nce for the year then ended, and the related notes to the fund financial statements and have issued our report thereon dated March 4, 2022.
Internal Control Over Financial Reporting
In planning and performing our audit of the financial statem ents, we considered the City’s internal control over the Fund’s financial reporting (“internal control”) to determ ine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City’s inte rnal control. Accordingly, we do not express an opinion on the effectiveness of the City’s internal control.
A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assi gned 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 material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis. 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 attention by those charged with governance.
Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies and therefore, material weaknesses or significan t deficiencies may exist that have not been identified.
Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weakness.
Compliance and Other Matters
As part of obtaining reasonable assurance about whethe r the financial statements of the Measure M Strong Communities Fund of the City are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contract s, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statem ent amounts. 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 no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.
200 E. Sandpointe Ave., Suite 600, Santa Ana, California 92707 Tel: 949-777-8800 • Fax: 949-777-8850
www.pungroup.cpa
3939352 Pun & McGeady_L_final.pdf 2 1/14/14 3:48 PM
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To the Honorable Mayor and Members of the City Council
of the City of Stockton
Stockton, California
4 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 entit y’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 4, 2022
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5 FUND FINANCIAL STATEMENTS
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Assets
Cash and cash equivalent 25,024,240$
Investments 243,557
Interest receivable 63,912
Deposits 18,097
Due from State of California Department of Tax and Fee Administration 2,937,724 Total assets 28,287,530$
Liabilities and Fund Balances
Liabilities:
Accounts payable 494,714$
Accrued payroll 155,245
Total liabilities 649,959
Fund Balance:
Restricted 27,637,571
Total fund balance 27,637,571
Total liabilities and fund balance 28,287,530$
City of Stockton
Balance Sheet
June 30, 2021
Measure M Strong Communities Fund
See accompanying Notes to Fund Financial Statements.
7 ATTACHMENT C
Revenues:
Taxes:
Sales - levied by City 13,932,748$
Interest income 103,111
Total revenues 14,035,859
Expenditures:
Current:
General government 8,976
Library 2,096,912
Parks and recreation 2,997,436
Capital outlay 2,610,257
Total expenditures 7,713,581
Changes in fund balances 6,322,278
Fund Balance:
Beginning of year 21,315,293
End of year 27,637,571$
City of Stockton
Statement of Revenues, Expenditures, and Changes in Fund Balances For the Year Ended June 30, 2021
Measure M Strong Communities Fund
See accompanying Notes to Fund Financial Statements.
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9 NOTES TO THE FUND FINANCIAL STATEMENTS
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City of Stockton
Measure M Strong Communities Fund
Notes to the Fund Financial Statements
For the Fiscal Year Ended June 30, 2021
11 Note 1 – Definition of the Fund
On November 8, 2016, the people of the City of Stockton (the “City”) approved the Strong Communities Initiative (“Measure M”), which authorized the City of Stockton Special Library and Recreation Transactions and Use Tax Ordinance (Ordinance No. 2016-06-07-1212). The original Ordinance is adopted by the Stockton City Council on May 24, 2016. An amended Ordinance was approved by the City Council on June 7, 2016. The Ordinance allows the City to implement a dedicated one-quart er (¼) cent special transaction and use tax for a period of 16 years for the restoration and expansion of library and recreation services.
The City established the Measure M Strong Communities Fu nd (the “Fund”), to accoun t for the Measure M taxes collected and spent on library and recreation services. These operations constitute part of the overall financial reporting entity of the City and are accounted for as a special revenue fund in accordance with generally accepted accounting principles within the City’s comprehensive a nnual financial report. The accounting policies of the Fund conform to the modified accrual basis of accounting.
Note 2 – Summary of Significant Accounting Policies
A. Basis of Presentation
The accompanying financial statements present only information pertain to the Fund and are not intended to present the financial position, changes in financial positio n, or cash flows of the City in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
The financial statement presentation follows the recommendations promulga ted by the Governmental Accounting Standards Board (“GASB”) commonly referred to as U. S. GAAP. GASB is the accepted standard-setting body for establishing governmental accounting and financial reporting standards.
B. Measurement Focus and Basis of Accounting
In the accompanying financial statements, the Fund is presented using the “ current financial resources ” measurement focus. This means that only current assets and current liabiliti es are generally included on their balance sheet. The Statement of Revenues, Expenditu res, and Changes in Fund Balance present increases (revenues) and decrease (expenditures) in net current assets.
The activities of the Fund are recorded in a special re venue fund and accounted for using the modified accrual basis of accounting. Special revenue funds are used to account for the proceeds of specific revenue sources (other than major capital projects) that are legally restricted to expenditures for specified purposes. Under the modified accrual basis of accounting, revenues are recognized wh en they become susceptible to accrual (i.e., both measurable and available). Measurable means that the amount of the transaction can be estimated, or otherwise determined. Available means the funds are collectible within 90 days after year-end. Expenditures are generally recognized when the related liability is incurred.
C. Use of Estimates
The preparation of the basic financial statements in conformity with accounting pr inciples generally accepted in the United States of America requires management to ma ke estimates and assumptions that affect the reported amounts of assets, liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported changes in net position during the reporting period. Actual results could differ from those estimates.
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City of Stockton
Measure M Strong Communities Fund
Notes to the Fund Financial Statements (Continued)
For the Fiscal Year Ended June 30, 2021
12 Note 2 – Summary of Significant Accounting Policies (Continued)
D. Cash, Cash Equivalents, and Investments
All cash and cash equivalents reported in the Fund are ac counted for by the City. For further information, please refer to Note 1 – Summary of Significant Accounting Po licies in the City’s annual comprehensive financial report.
E. Receivables
Revenues are recorded when received in cash, except revenues subject to accrual (up to 90 days after year-end) are recognized when due. The primary revenue source of th e Fund is transactions and use tax collected through the State of California Department of Tax and Fee Administration.
F. Classification of Fund Balance
All fund balance in the Fund is fully restricted.
Restricted – Amounts that are restricted by external parties such as creditors or imposed by grants, laws or regulations of other governments or imposed by law throug h constitutional provisions or enabling legislation.
The City has legislative restrictions on amounts collect ed and reported in the Fund. As a result, these restrictions have been classified as restricted for library and recreation.
Other types of fund balance that are not applicable to the Fund are described below:
Nonspendable – Amounts that cannot be spent because they are (1) not in spendable form, such as prepaid items, inventories and long-term receivables for whic h the payment of proceeds are not restricted or committed with respect to the nature of the specific expe nditures of that fund or (2) legally or contractually required to be maintained intact.
Committed – This amount indicates the portion of fund balances which can only be used for specific purposes under formal resolution or ordinance of the City Coun cil. Commitments may be changed or lifted only by the City taking the same formal action that imposed the constraint originally.
Assigned – Amounts that have been allocated by action of an official authorized by the Stockton City Council in which the City’s intent is to use the funds for a specific purpose. The City considers this level of authority to be the City Manager of the City of Stockton.
Unassigned – Amounts that constitute the residual balances th at have no restrictions placed upon them. If restrictions exceed available resources at the end of the year, the deficit amounts are reported and classified as unassigned.
G. Spending Policy
When expenditures are incurred for purposes for which both restricted and unrestricted fund balances are available, the City’s policy is first to expend restricted fund balances, then unrestricted fund balances as they are needed.
When expenditures are incurred for purposes where only unrest ricted fund balances are av ailable, the City uses the unrestricted resources in the following order: committed, assigned, and unassigned depending on the nature of the expenditure.
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City of Stockton
Measure M Strong Communities Fund
Notes to the Fund Financial Statements (Continued)
For the Fiscal Year Ended June 30, 2021
13 Note 3 – Cash and Cash Equivalents
Cash and cash equivalents as of June 30, 2021 consist of the following:
Descrip tion June 30, 2021
Demand Deposits 25,024,240$
Total cash and cash equiv alents 25,024,240$
The Fund’s cash was part of the pool cash and investments of the City of Stockton (the “City”).
At June 30, 2021, the carrying amount of the Fund’s depos its was $25,024,240. The total bank balance was covered by federal depository insurance or by colla teral with securities held by the pledgi ng financial institutions in the City’s name as discussed below.
The California Government Code requir es California banks and savings and loan associations to secure the City’s cash deposits by pledging securities as collateral. This Code states that collateral pledged in this manner shall have the effect of perfecting a security interest in such collateral superior to those of a general creditor. Thus, collateral for cash deposits is considered to be held in the City's name.
The market value of pledged securities must equal at least 110% of the City's cash deposits. California law also allows institutions to secure Stockton deposits by pledging first trust deed mortgage notes having a value of 150% of the City’s total cash deposits. The City may waive collateral requirements for cash deposits, which are fully insured up to $250,000 by the Federal Deposit Insurance Corporati on (“FDIC”). The City, however, has not waived the collateralization requirements for deposits insured by FDIC.
Note 4 – Due From Other Governments
Due from other governments consists of retail transactions and use tax due from the State of California Department of Tax and Fee Administration. At June 30, 2021, the amount due from the State of California Department of Tax and Fee Administration was $2,937,724.
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City of Stockton
Measure M Strong Communities Fund
Notes to the Fund Financial Statements (Continued)
For the Fiscal Year Ended June 30, 2021
14 Note 5 – Commitments and Contingencies
Litigation
Legal claims and lawsuits arise from time to time in th e normal course of business wh ich, in the opinion of management, will not materially affect the financial statements of the City as of June 30, 2021.
Commitments
In addition to library and recreation operations, Str ong Communities funds are being used for capital projects expanding or improving library and recreation facilities. The City Council approve capital appropriations as of June 30, 2021 were $15,998,892. The largest project underw ay, with an approved appropriation of $10,853,269, will build a new library and recreation facility in Northeast St ockton. In addition, $473,935 was appropriated to upgrade the fencing and gate for improved security at the Mc Nair Soccer Complex. Also included are $2,823,283 for additional restroom facilities, expansion of the parking lot and additional light ing at the Stockton Soccer Complex. Finally, the Stockton City Council approved to appropriate $1,887,000 for the renovation of the McKinley Park and Recreation Center. Facilitie s require extensive renovation or re placement as well as expanded aquatics amenities such as children’s pools, spray grounds and equipment.
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15 REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED)
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City of Stockton
Measure M Strong Communities Fund
Required Supplementary Information (Unaudited)
For the Fiscal Year Ended June 30, 2021
17 1. Budgetary Information
Budget Process
In accordance with the provisions of the City Charter, the City prepares and adopts a budget on or before June 30 for each fiscal year. Total Appropriations shall not exceed the total of estimated revenues, estimated unencumbered balances of funds to be carried over from the preceding year and unencumbered available fund balances. Prior to July 1, the original adopted budget is legally enacted through the passage of a resolution by the City Council. In the event this does not occur, the City Manager’s draft budget is in force until a budget is adopted by the City Council.
If expenditures exceed appropriations at the department level for the General Fund or at the fund level for all other funds, Council approval must be obtained to amend the budget. The City Manager is authorized to transfer budgeted amounts between line items within a General Fund department and w ithin a fund for all other funds.
During the year, the City Council approves supplemental appr opriations and, by resolution, has also authorized the City Manager to transfer fund balances to applicab le appropriation accounts, or to transfer between funds, when necessary to continue purposes approved by the City Council in the current year, adopted budget, or subsequent action. Amounts reported as final budget in the Schedule of Re venues, Expenditures and Changes in Fund Balance – Budget and Actual – On a Budgetary Basis include amendments authorized throughout the year.
All unencumbered appropriations lapse at year-end, with the exception of some capital improvement projects and miscellaneous grants in the respective funds. Encumber ed appropriations are re-appropriated in the following year’s budget.
Budgetary Basis of Accounting
The City adopts budgets each fiscal year on a basis of accounting, which is differe nt from accounting principles generally accepted in the United States of America (GAAP).
The statements of revenue, expenditures and changes in fund balances have been prepared on the modified accrual basis of accounting in accordance with GAAP. Th e schedules of revenues, expenditures and changes in fund balances – budget and actual – on a budgetary basis have been prepared on the budgetary basis, which is different from GAAP.
The variations from GAAP that are for budgetary purposes include the following:
Outstanding commitments relating to construction contracts and other purchases of goods and services are recorded as expenditures at the time contracts or purchase agreements are entered into. Under GAAP, these obligations are recognized when goods are received or services are rendered.
The write-off uncollectable accounts receivables is not recognized as an expenditure. Under GAAP, these write-offs are recognized as expenditures when th e accounts receivables are determined to be uncollectable.
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City of Stockton
Measure M Strong Communities Fund
Required Supplementary Information (Unaudited) (Continued) For the Fiscal Year Ended June 30, 2021
18 Budgetary Information (Continued)
Schedule of Revenues, Expenditures, and Changes in Fund Balance – Budget and Actual V ariance with
Original Final Actual Final Budget
Revenues:
Tax es:
Sales - levied by City 9,600,000 $ 9,600,000 $ 13,932,748 $ 4,332,748 $ Interest income 106,00 0 106,000 103,111 (2,889) Total rev enues 9,706,000 9,706,000 14,035,859 4,329,859 Expenditures:
Current:
G eneral G overnm ent - - 8,976 (8,976) Library 3,186,506 3,141,554 2,096,912 1,044,642 Recreation programs 5,066,274 5,158,426 2,997,436 2,160,990 Capital outlay 177,000 17,908,886 2,610,257 15,298,629 Total expenditures 8,429,780 26,208,866 7,713,581 18,495,285 Changes in fund b alances 1,276,220$ (32,380,674)$ 6,322,278 38,702,952 $ Fund Balance (Budgetary Basis):
Beginning of year 21,315,293
End of year 27,637,571$
Basis Ad justm ent:
Changes in fund balances - budgetary basis 6,322,278$
Encumbrances 259,552
Changes in fund balances - GAAP basis 6,581,830
Fund Balance (GAAP Basis):
Beginning of year 21,315,293
End of year 27,897,123$
Budget
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