Additional Handout for Agenda Item No. 10
VLF
Van Lant&
Fankhanel,LLP
Certified Public Accountants '
Independent Auditor's 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 City Council
City of Yucaipa
Yucaipa, California
We have audited, in accordance with the 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, the financial statements of the governmental activities, each major fund and the aggregate remaining fund information of the City of Yucaipa (City), as of and for the year ended June 30, 2021, and the related notes to the financial statements, which collectively comprise the City's basic financial statements, and have issued our report thereon dated June April 20, 2022.
Internal Control Over Financial Reporting
In planning and performing our audit of the financial statements, we considered the City's internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City's internal 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 assigned 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. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified.
Van Lant & Fankhanel, LLP
29970 Technology Drive. Suite 105 A
Murrieta. CA 92563
909.856.6879
Compliance and Other Matters
As part of obtaining reasonable assurance about whether the City's financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement 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 an instance of noncompliance or other matters that are required to be reported in accordance with Government Auditing Standards and which is disclosed in the accompanying schedule of findings and responses as item 2021-001.
City of Yucaipa's Response to Findings
The City of Yucaipa's response to the finding identified in our audit is described in the accompanying schedule of findings and responses. The City's response was not subjected to the auditing procedures applied in the audit of the financial statements and, accordingly, we express no opinion on it.
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 City'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 organization's internal control and compliance. Accordingly, this communication is not suitable for any other purpose.
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April 20, 2022
2 CITY OF YUCAIPA
SCHEDULE OF FINDINGS AND RESPONSES
Year Ended June 30, 2021
Other Matters
2021-001 General Fund Advances
Condition:
As noted in prior years, the General Fund has advanced over $22 million to various development impact fee (DIF) funds for projects in previous years including the City's YPAC, police station, park facilities, etc. It should be noted, approximately $4 million in advances to the DIF funds were repaid in fiscal year 2021. The advances have resulted in significant nonspendable fund balance in the General Fund. It should also be noted, the City has committed to the repayment of DIF funds to the General Fund, through formal interfund loan agreements, over a period of many years into the future.
Potential Effect of Condition:
The amounts advanced to the DIF funds by the General Fund have resulted in significant nonspendable fund balance, and, depending on the timing of repayment, this money is not available for use by the City's General Fund. It is unclear, when these amounts will be repaid in full.
Recommendation:
Based on the City's repayment plan for the DIF funds, it appears the ability to repay the loans in the future is reasonably possible based on future development. However, we recommend the City continue to evaluate the likelihood of repayment on a periodic basis, and also ensure the repayments are made each year in accordance with the interfund loan agreements. In addition, we recommend the City evaluate any additional advances of monies to specific DIF funds from the General Fund until all amounts due from the DIF fund have been repaid to the General Fund.
Management's Response:
Overall DIF loan repayments are regularly evaluated by the City on a periodic basis. City staff also ensures that the City complies with interfund loan agreements regarding required DIF loan repayments each year. In addition, the City Council appraises any additional advances of monies to specific DIF funds from the General Fund on a periodic basis. 3