City of San Juan Capistrano Agen port ~"

Transcription

1 1/21/2014 C1 TO: FROM: DATE: SUBJECT: City of San Juan Capistrano Agen port ~" Karen P. Brust, City Cindy Russell, Chief Financial Officer/City Treasure~ Prepared by: Michelle Bannigan, Assistant Finance Director c..jk Pt. H f3 January 21, 2014 Fiscal Year Audit Reports by Rogers, Anderson, Malady & Scott, LLP RECOMMENDATION: By motion, receive and file. EXECUTIVE SUMMARY: The City's auditors, Rogers, Anderson, Malady & Scott, LLP (RAMS) have completed its audit of the City's financial statements for the fiscal year ended June 30, The auditors have issued an unmodified opinion on the statements, which is the highest level of assurance an entity can receive from its independent auditors (a "clean audit"). There were no recommendations included in the management letter this year. For fiscal year ended June 30, 2013, total revenues in the General Fund exceeded total expenditures by $2,282,992 (page 94 of Enclosure 1 ). As of June 30, 2013, the City's General Fund contingency reserve was 38.1% of the General Fund's Fiscal Year budgeted operating expenditures, which is an improvement from staff's previously projected contingency of 36.4% in the Mid-Term Budget Update that was reviewed by the City Council on June 18, The Water Enterprise Fund operations have improved by $1.3 million. The deficit operating reserve is $3.8 million as of June 30, 2013, an improvement from the $5.1 million deficit from the prior year. The Sewer Enterprise Fund operating reserve is $2.7 million as of June 30, 2013, an increase of $0.6 million from the prior year. DISCUSSION/ANALYSIS: The City awarded the audit services contract to RAMS on April 19, The audit contract is a three-year contract to cover the fiscal years ended June 30, 2011, June 30,

2 City Council Agenda Report January 21, 2014 Page 2 of , and June 30, The contract also provides an option to extend for two additional one-year periods. RAMS has completed the audit of the City's financial statements and notes to the basic financial statements for the fiscal year ended June 30,2013. After completing the audit, RAMS provided the City with an unmodified opinion on the financial statements which means the City's financial statements are free of material misstatements and are in accordance with Generally Accepted Accounting Principles (GAAP). In other words, the City has a clean audit. The specific financial documents on which the auditor expresses an opinion are the financial statements and the notes to the basic financial statements, which include required supplementary information. These documents along with the auditor's opinion letter and management's discussion and analysis (MD&A) form the core of the Comprehensive Annual Financial Report (CAFR) (Enclosure 1 ). The CAFR also includes the transmittal letter from the City Manager and Chief Financial Officer/City Treasurer and a supplemental section which includes a statistical section presenting detailed information to assist the reader in assessing the economic condition of the City. Statement on Auditing Standards (SAS) 114 was issued by the American Institute of Certified Public Accountants (AICPA) to establish a two way communication between the independent auditors and those charged with governance (i.e. City Council). Since the City's audit for the fiscal year ended June 30, 2007, the City's auditors have been required to communicate specific areas involving the City's audit with the City Council at the end of the audit such as: corrected and uncorrected misstatements, disagreements with management, significant difficulties encountered during the audit, and other items (Attachment 1 ). We are pleased to report that the report indicates no such issues for the Fiscal Year audit. Article XIII-B of the California State Constitution places limits on the amount of revenue from taxes that can be spent by the State and each local government entity. It is the responsibility of the City to calculate the annual appropriations limit. The City's appropriations limit for Fiscal Year was calculated to be $61,655,048. The City's auditors are required to review and approve the appropriations calculation as part of its audit of the City. The auditor found no exceptions to the City's calculation of the appropriations limit, meaning staff's computation of the Fiscal Year appropriations limit was mathematically correct (Attachment 2). The City's auditors also completed the City's single audit on federal expenditures for the fiscal year ended June 30, 2013, and issued the City a "clean audit" report with no findings or recommendations (Attachment 3). The compliance requirements for the Single Audit are set forth by the U.S. Office of Management and Budget in a document known as "Office of Management and Budget (OMB) Circular A-133 ("the Circular'')." The Circular provides the auditors with guidelines to follow in performing the Single Audit and it provides both the auditors and grantees (like the City of San Juan Capistrano) with guidelines and compliance requirements for the various grants that are funded by the federal government.

3 City Council Agenda Report January 21, 2014 Page 3 of 4 A Single Audit is required when a public agency incurs more than $500,000 in federal expenditures during the fiscal year. To be considered a "low risk auditee" for the purposes of the Fiscal Year Single Audit, the City must have met the following criteria for the last two fiscal years (Fiscal Years and ): a) a Single Audit must have been completed; b) the Single Audit cannot report any material weaknesses in internal control or compliance findings and c) the audit reports included an unmodified opinion on the financial statements and the Schedule of Expenditures of Federal Awards. The City's Single Audits for both Fiscal Years and included compliance findings. Therefore, the City does not meet the criteria to be considered a "low risk auditee" for major program determination purposes for Fiscal Year As a result, the auditors were required to audit at least 50% of the City's total federal expenditures for Fiscal Year Total federal expenditures during the fiscal year ended June 30, 2013, were $775,163 (Attachment 3, page 8). The City's auditors tested one program, the Highway Planning and Construction Program, as the "major program" for the Fiscal Year Single Audit. This program included one City project, the Del Obispo Circulation Improvement and Bridge Widening Project (City project number 07107), which incurred $669,782 in federally funded expenditures. When the auditors test a "major program", the auditors are expected to review internal controls and compliance requirements covering 14 different compliance areas that are applicable to this federal program as communicated by the Circular's Program Compliance Supplement. The auditors did not report any deficiencies in internal control over compliance for this federal program in the report (Attachment 3, pages 5 through 7). Page 12 of Attachment 3 includes a status of the City's one recommendation that was made from the Fiscal Year Single Audit. Staff is pleased to report that the auditors consider this prior year recommendation resolved. Statement on Auditing Standards (SAS 115) was issued by the AICPA to require independent auditors to report to the City Council significant deficiencies and material weaknesses in internal control over financial reporting and any material noncompliance with certain laws, regulations, contracts, and grant agreements that were identified by the auditors during their fieldwork. The City's Single Audit Report, includes a 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 (Attachment 3 Pages 3 and 4). This report states that the auditors did not identify any deficiencies in internal control that would be considered a material weakness or any instances of noncompliance that are required to be reported under Government Auditing Standards. This means the auditors have no findings or recommendations for improvement in internal control over financial reporting or compliance that were identified by the auditors as a part of the audit of the fiscal year ended June 30, FISCAL IMPACT: The City's contingency reserve calculation is the percent the ending unassigned fund balance is of the total General Fund expenditures, excluding transfers for capital improvement project transfers (operating expenditures). As of June 30, 2013, the

4 City Council Agenda Report January 21, 2014 Page 4 of 4 General Fund contingency reserve is $8,592,226, which is 38.1% of the Fiscal Year budgeted operating expenditures. The Water Enterprise Fund operations have improved by $1.3 million. The deficit operating reserve is $3.8 million as of June 30, 2013, an improvement from the $5.1 million deficit in the prior year. The Sewer Enterprise Fund operating reserve is $2.7 million as of June 30, 2013, which is 87.9% of the Fiscal Year budgeted operating expenses. The available operating and capital reserves are contained in the unrestricted net asset portion of the enterprise funds statement of net assets. The unrestricted net assets also include certain non-current assets and other minor items incurred as of June 30, Therefore, the MD&A includes a breakdown of the water and sewer enterprise unrestricted net assets as of June 30, 2013, (Enclosure 1, page 16). ENVIRONMENTAL IMPACT: Not applicable. PRIOR CITY COUNCIL REVIEW: Not applicable. COMMISSION/BOARD REVIEW AND RECOMMENDATIONS: Not applicable. NOTIFICATION: Not applicable. ATTACHMENTS: Attachment 1 - SAS 114 Report Attachment 2- Independent Accountant's Report on Agreed-Upon Procedures Applied to Appropriations Limit Worksheets Attachment 3 - Single Audit Report on Federal Awards ENCLOSURE: Enclosure 1 - Comprehensive Annual Financial Report (CAFR)

5 ROGERS, ANDERSON, MALODY & SCOTT, LLP CERTIFIED PUBLIC ACCOUNTANTS. SINCE E. C ar negie Dr. Suite I 00 San Bernardino. CA T F r arn scp a.ne t December 19, 2013 PARTNERS Brenda L Odie. CPA. MST Terry P Shea. CPA Kll"k A Franks. CPA Matthew B Wilson. CPA. MSA. CGMA Scott W Manno. CPA. CGMA Lccna Shanbhag. CPA. MST. CGMA Jay H Zercher. CPA (Partner Emerrtus) Phillrp H Waller. CPA (Partner Emennrs) MANAGERS/ STAFF Nancy O'Rafferty, CPA. MBA Bradfer d A Welebrr. CPA. MBA jen 1y Lru. CPA. MST Papa Matar Thraw. CPA. MBA Ma fa S lvanova. CPA. MBA Peter E Murray. CPA Scong-Hyea Lee. CPA. MBA Char les De Srmonr. CPA Y1:1nn Fang. CPA Dan rei T Tumer. CPA. MSA Der ek J Br own. CPA. MST Davrd D Henwood. CPA To the Honorable City Council City of San Juan Capistrano, 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 City of San Juan Capistrano, California (the City) for the year ended June 30, Professional standards require that we provide you with information about our responsibilities under generally accepted auditing standards (and, if applicable, Government Auditing Standards and OMB Circular A-133), 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 May 7, Professional standards also require that we communicate to you the following information related to our audit. Qualitative Aspects of 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 Note 1 to the financial statements. During the year under audit, the City adopted Governmental Accounting Standards Board Statement No. 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position. The application of existing policies was not changed during the year under audit. We noted no transactions entered into by the governmental unit 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. MEMBERS ArT1eric<1n lnslltute of Cenrfred Publrc Accountants PCPS Tire A/CPA All10nce for CPA Flfrns Governmental Audtl Quo/rry Center C1lrfornra Socrety of Cenrfrcd Publrc Accountants 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 City's financial statements were: Management's estimate of the fair value of cash and investments is based on information provided by financial institutions. We evaluated the key factors and assumptions used to develop the fair value of cash and investments in determining that it is reasonable in relation to the financial statements taken as a whole. STABILITY. ACCURACY. TRUST.

6 The Honorable City Council Page 2 City of San Juan Capistrano, California Management s estimate of capital assets depreciation is based on historical estimates of each capitalized item s useful life expectancy or cost recovery period. We evaluated the key factors and assumptions used to develop the capital asset depreciation calculations in determining that they are reasonable in relation to the financial statements taken as a whole. Management s estimate of the liability for pensions and other post-employment benefits 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 financial statements taken as a whole. Management s estimates of the enforceable obligations of the successor agency to the former community redevelopment agency are based on correspondence with the State of California. We evaluated the key factor and assumptions used to develop the estimates in determining 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 fair value of cash and investments in the notes to the basic financial statements represents amounts susceptible to market fluctuations. The disclosure of capital assets, net, in the notes to the basic financial statements is based on historical information which could differ from actual useful lives of each capitalized item. The disclosure of the City s retirement plan in the notes to the basic financial statements indicates the pension retirement benefit commitment of the City and the annual pension cost. The disclosure of the City s other post-employment benefits (OPEB) in the notes to the basic financial statements identifies the annual OPEB cost and the funded status of the actuarial accrued liability. The information disclosed is based on actuarial assumptions which could differ from actual costs. The financial statement disclosures are neutral, consistent, and clear. Difficulties Encountered in Performing the Audit We encountered no 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 clearly trivial, and communicate them to the appropriate level of management. No such misstatements were noted as part of our audit procedures. 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.

7 The Honorable City Council Page 3 City of San Juan Capistrano, California Management Representations We have requested certain representations from management that are included in the management representation letter dated December 19, 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 governmental unit'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. Other Audit Findings or Issues We generally discuss a variety of matters, including the application of accounting principles and auditing standards, with management each year prior to retention as the governmental unit'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 With respect to the supplementary information accompanying the financial statements, 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. This information is intended solely for the use of 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,

8 ROGERS, ANDERSON, MALODY & SCOTT. LLP CERTIFIED PUBLIC ACCOUNTANTS, SINCE E. Carnegie Dr. Suite I 00 San Bernardino. CA T F ramscpa. net PARTNERS Brenda L Odie. CPA, MST Terry P. Shea. CPA K1rk A Franks. CPA Matthew B Wilson. CPA. MSA. CGMA Scott W. Manno. CPA. CGMA Lcena Shanbhag. CPA. MST. CGMA Jay H. Zercher. CPA (Partneo Ementus) Pholl1p H Walle.-. CPA (Panner Ementus) MANAGERS I STAFF Nancy O'Rafferty. CPA. MBA Bradferd A Weleb!l'. CPA. MBA jen 1y Lou, CPA. MST Papa Matao Th1aw. CPA. MBA Maya S lvanov<j. CPA. MBA Peter E Murray. CPA Sccng-Hyca Lee. CPA. MBA Charles De Somon1, CPA Y :tnn Fang. CPA Do111el T Tu.-ner. CPA. MSA Deo-ek J Brown. CPA. MST Dav1d D Henwood. CPA INDEPENDENT ACCOUNTANT'S REPORT ON AGREED-UPON PROCEDURES APPLIED TO APPROPRIATIONS LIMIT WORKSHEETS To the City Council City of San Juan Capistrano, California We have performed the procedures enumerated below to the accompanying Appropriations Limit worksheet of the City of San Juan Capistrano, California, (the City) for the year ended June 30, These procedures, which were agreed to by the City, California and the League of California Cities (as presented in the publication entitled Agreed-upon Procedures Applied to the Appropriations Limitation Prescribed by Article X/11-B of the California Constitution), were performed solely to assist the City in meeting the requirements of Section 1.5 of Article Xlll-8 of the California Constitution. The City's management is responsible for the Appropriations Limit worksheet. This agreed-upon procedures engagement was conducted in accordance with attestation standards established by the American Institute of Certified Public Accountants. The sufficiency of these procedures is solely the responsibility of those parties specified in this report. Consequently, we make no representation regarding the sufficiency of the procedures described below either for the purpose for which this report has been requested or for any other purpose. The procedures performed and our findings were as follows: MEMBERS Amenct'ln Institute of Cenofoed Public Accountants PCPS The AICPA All1once for CPA Fmns Governmental Audot Qunl11y Cetller C11!fornoa Soc1ety of Ccn1foed Publoc Accountants 1. We obtained the completed worksheets and compared the limit and annual adjustment factors included in those worksheets to the limit and annual adjustment factors that were adopted by resolution of the City Council. We also compared the population and inflation options included in the aforementioned documents to those that were selected by a recorded vote of the City Council. Finding: No exceptions were noted as a result of our procedures. 2. For the accompanying Appropriations Limit worksheet, we added last year's limit to total adjustments and agreed the resulting amount to this year's limit. Finding : No exceptions were noted as a result of our procedures. STABILITY. ACCURACY. TRUST.

9 To the City Council Page 2 City of San Juan Capistrano, California 3. We agreed the current year information presented in the accompanying Appropriations Limit worksheet to the other documents referenced in #1 above. Finding: No exceptions were noted as a result of our procedures. 4. We agreed the prior year appropriations limit presented in the accompanying Appropriations Limit worksheet to the prior year appropriations limit adopted by the City Council during the prior year. Finding: No exceptions were noted as a result of our procedures. We were not engaged to, and did not perform an examination, the objective of which would be the expression of an opinion on the accompanying Appropriations Limit worksheet. Accordingly, we do not express such an opinion. Had we performed additional procedures, other matters might have come to our attention that would have been reported to you. No procedures have been performed with respect to the determination of the appropriation limit for the base year, as defined by the League publication entitled Article XIII-B of the California Constitution. This report is intended solely for the information and use of the City Council and management of the City of San Juan Capistrano, California and is not intended to be and should not be used by anyone other than these specified parties. However, this report is a matter of public record and its distribution is not limited. San Bernardino, CA December 19, 2013

10 CITY OF SAN JUAN CAPISTRANO APPROPRIATIONS LIMIT COMPUTATION Per Capita Personal Income Change 3.77% Population Change County Population Growth 0.89% CPI Change Converted to a Ratio Population Change Converted to a Ratio Calculation of Growth Factor Limit $ 58,892, Appropriations Limit $ 61,655,048 ($58,892,968 * )

11 City of San Juan Capistrano Single Audit Report on Federal Awards Year Ended June 30, 2013

12 City of San Juan Capistrano Single Audit Report on Federal Awards Year Ended June 30, 2013 Table of Contents Page Number 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 1 Independent Auditor s Report on Compliance for Each Major Program and on Internal Control Over Compliance Required by OMB Circular A Schedule of Expenditures of Federal Awards 6 Notes to the Schedule of Expenditures of Federal Awards 7 Schedule of Findings and Questioned Costs 8 Summary Schedule of Prior Audit Findings 10

13 lib 1111 ROGERS, ANDERSON, MALODY & SCOTT, LLP CERTIFIED PUBLIC ACCOUNTANTS, SINCE E. Carnegie Dr. Suite I 00 San Bernardino. CA T F ramscpa.net PARTNERS Br enda L Odie. CPA. MST Ter-ry P Shea. C PA Krrk A Franks. CPA Mouhew B Wilson. CPA, MSA, CGMA Scott W. Manno. CPA. CGMA Leena Shanbhag. CPA. MST. cgma Jay H. Zercher, CPA (Partner Ementus) Phrllrp H Waller. CPA (Parmer Ementus) MANAGERS I STAFF Nancy O 'Raffer ty. CPA. MBA Br adferd A Welebir, CPA, MBA Jen~y Liu. CPA. MST Papa Matar Thraw. CPA. MBA Ma fa S Ivanov;,. CPA, MBA Peter E Murr:ay. CPA Seong-Hyea Lee. CPA. MBA Ch;1rles De Srmonr. CPA Y1:1nn F ~mg. CPA Dan rei T Tumer. CPA. MSA Derek J Br own. CPA. MST Davrd D Henwood. CPA 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 To the City Council City of San Juan Capistrano, 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, the business-type activities, each major fund, and the aggregate remaining fund information of City of San Juan Capistrano (the City), as of and for the year ended June 30, 2013, and the related notes to the financial statements, which collectively comprise the City's basic financial statements, and have issued our report thereon dated December 19, 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 City's internal control. Accordingly, we do not express an opinion on the effectiveness of City's internal control. MEMBERS Amencrtn lnsutute of Cenrfr ed P11blic Accountants PCPS The A/CPA All10nce for CPA Frrrns Gnvenllnentnl Audl( Quolrty Center Calrfornro Socrety of Cenrfred Public Accountants 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. STABILITY. ACCURACY. TRUST~ 1-

14 To the City Council City of San Juan Capistrano, California 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. Compliance and Other Matters As part of obtaining reasonable assurance about whether 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 no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. 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 entity 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. San Bernardino, CA December 19,

15 ROGERS, ANDERSON, MALODY & SCOTT, LLP CERTIFIED PUBLIC ACCOUNTAN TS, SI N CE E. C arnegie Dr. Suite I 00 Sa n Bernardino. CA T F ra mscpa. ne t PARTNERS Brenda L Odie, CPA, MST Terry P Shea. CPA K1rk A hanks. CPA M<Jtthew B. Wilson. CPA, MSA. CGMA Scott W Manno. CPA, CGMA Leen<1 Shanbhag. CPA. MST. CGMA j<1y H. Zerche1, CPA (Partner Ementus) Phillip H. Waller. CPA (Panne1 Ementus) MANAGERS I STAFF NJncy O'Rafferty, CPA. MBA BrJdferd A Weleb11, CPA. MBA jen 1y L1u, CPA. MST Papa Mat<ll Tlmw. CPA. MBA Ma {a S lvanova. CPA. MBA Peter E Murray. CPA Scc ng-hyca Lee. CPA. MBA ChJrles De S1mon1. CPA Yi;1nn Fang, CPA D<1n1el T Turner, CPA. MSA Derek J Brown. CPA, MST David D Henwood. CPA INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE FOR EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY OMB CIRCULAR A-133 To the City Council City of San Juan Capistrano, California Report on Compliance for Each Major Federal Program We have audited the City of San Juan Capistrano's (the City) compliance with the types of compliance requirements described in the OMB Circular A-133 Compliance Supplement that could have a direct and material effect on City's major federal program for the year ended June 30, The City's major federal program is identified in the summary of auditor's results section of the accompanying schedule of findings and questioned costs. Management's Responsibility Management is responsible for compliance with the requirements of laws, regulations, contracts, and grants applicable to its federal programs. Auditor's Responsibility MEMBERS An1enG111 lnst1tute of CNt1f1ed Publ1c Accountants PCPS The A/CPA All10nce for CPA Frrrns Gover nn tf'tl raj Audt! Quolrty Center CJI!for111o Soc1ety of Cert1f1ed Publ1c Accountants Our responsibility is to express an opinion on compliance for the City's major federal program based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States and OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about City's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. STABILITY. ACCURACY. TRUST. -3-

16 To the City Council City of San Juan Capistrano, California We believe that our audit provides a reasonable basis for our opinion on compliance for the major federal program. However, our audit does not provide a legal determination of City s compliance. Opinion on Each Major Federal Program In our opinion, the City complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on its major federal program for the year ended June 30, Report on Internal Control Over Compliance Management of the City is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered the City s internal control over compliance with the types of requirements that could have a direct and material effect on the major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for the major federal program and to test and report on internal control over compliance in accordance with OMB Circular A-133, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of City s internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. -4-

17 To the City Council City of San Juan Capistrano, California Report on Schedule of Expenditures of Federal Awards Required by OMB Circular A-133 We have audited the financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of City, as of and for the year ended June 30, 2013, and the related notes to the financial statements, which collectively comprise City s basic financial statements. We issued our report thereon dated December 19, 2013, which contained unmodified opinions on those financial statements. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the basic financial statements. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by OMB Circular A-133 and is not a required part of the basic financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the schedule of expenditures of federal awards is fairly stated in all material respects in relation to the basic financial statements as a whole. Purpose of this Report The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of OMB Circular A-133. Accordingly, this report is not suitable for any other purpose. San Bernardino, CA December 19,

18 City of San Juan Capistrano Schedule of Expenditures of Federal Awards Year Ended June 30, 2013 Federal Program Federal Grantor/ Pass-through Grantor CFDA Identification Federal Program Title Number Number Expenditures U.S. Department of Housing and Urban Development Passed through the State of California Department Housing and Community Development Community Development Block Grants STBG-1927 $ 173 HOME Investment Partnership Program HOME HOME HOME ,770 Total - U.S. Department of Housing and Urban Development 91,943 U.S. Department of Justice Passed through the Orange County Sheriff's Department ARRA-Edward Byrne Memorial Justice Assistance Grant ARRA SB-B ,438 Total - U.S. Department of Justice 13,438 U.S. Department of Transportation Passed through the State of California Department of Transportation Highway Planning and Construction (Federal-aid Program)* STPL-5372(011) 669,782 Total - U.S. Department of Transportation 669,782 Total Expenditures of Federal Awards $ 775,163 * Major Program See accompanying notes to the schedule of expenditures of federal awards. -6-

19 City of San Juan Capistrano Notes to the Schedule of Expenditures of Federal Awards Year Ended June 30, 2013 NOTE 1: BASIS OF PRESENTATION The information in the accompanying schedule is presented in accordance with the requirements of OMB Circular A-133, Audits of States, Local Governments and Non-Profit Organizations. The accompanying schedule presents only the expenditures incurred by the City of San Juan Capistrano that are reimbursable by agencies providing federal assistance. For the purposes of this schedule, federal financial assistance includes both federal financial assistance received directly from a federal agency, as well as federal funds received indirectly from a nonfederal agency or other organization. Only the portions of program expenditures reimbursable with such federal funds are reported in the accompanying schedule. Program expenditures in excess of the maximum federal reimbursement authorized or the portion of the program expenditures that were funded with state, local or other non-federal funds are excluded from the accompanying schedule. NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Expenditures included in the accompanying schedule are reported on the modified accrual basis of accounting. Accordingly, expenditures represent amounts incurred during the fiscal year, which meet federal grant eligibility requirements. Under the modified accrual basis of accounting, expenditures are recognized when the City becomes obligated for payment as a result of the receipt of the related goods and services. Expenditures reported include any property or equipment acquisitions under the federal program. NOTE 3: SUB-RECIPIENTS The City did not provide Federal awards to sub-recipients for the year-ended June 30,

20 City of San Juan Capistrano Schedule of Findings and Questioned Costs Year Ended June 30, 2013 I. SUMMARY OF AUDITOR'S RESULTS Financial Statements Type of auditor's report issued: unmodified Internal control over financial reporting: Material weakness identified? Yes X No Significant deficiencies identified that are not considered to be material weaknesses? Yes X None reported Noncompliance material to financial statements noted? Yes X No Federal Awards Internal control over major programs: Material weakness identified? Yes X No Significant deficiencies identified that are not considered to be material weaknesses? Yes X None reported Type of auditor's report issued on compliance for major programs: unmodified Any audit findings disclosed that are required to be reported in accordance with section 510(a) of OMB Circular A-133? Yes X No Identification of major programs: CFDA Number Name of Federal Program Highway Planning and Construction Dollar threshold used to distinguish between type A and type B programs: $ 300,000 Auditee qualified as low-risk auditee? Yes X No -8-

21 City of San Juan Capistrano Schedule of Findings and Questioned Costs (continued) Year Ended June 30, 2013 II. FINDINGS FINANCIAL STATEMENT AUDIT No matters to report. III. FEDERAL AWARD FINDINGS AND QUESTIONED COSTS No matters to report. -9-

22 City of San Juan Capistrano Summary Schedule of Prior Audit Findings Year Ended June 30, 2013 CURRENT STATUS OF PRIOR YEAR FINDINGS: DEPARTMENT OF TRANSPORTATION (Passed through the State of California) Finding : CFDA No ; Grant No. ER-18D7(012) Condition The City did not collect certified payroll reports for work performed under this grant. Recommendation Auditor recommended that program manager(s) require all contractors of projects funded with Federal-aid to submit weekly certified payrolls to ensure compliance with the Davis-Bacon Act. Current Status The City has implemented effective controls to ensure that contractors submit certified payrolls; thus, ensuring compliance with the Davis-Bacon Act. -10-