HomeMy WebLinkAbout1980-12-09; City Council; N/A; Results of Annual Audit and First Quarter ReportC�J
TO: City Manager
tr
1:
FROM: Finance Director <7_ _,,
SUBJECT: 1979-80 Audit and 198 -81 First Quarter Report
DATE: December 5, 1980
The attached reports summarize the results of the 1979-80 Annual
Audit and the 1980-81 first quarter report. I will be available
to present these reports to the City Council on December 9,
1980. Of particular interest to the Council will be the City's
fiscal position as of June 30, 1980 and the projections for
the rest of 1980-81.
The City's position at the end of 1979-80 was relatively good.
No serious problems exist that affect the present fiscal condi-
tion. The Audit shows that, financially speaking, the City has
been operating within the budget estimates. General Fund
revenues were 1.9% above the final estimates and General Fund
expenditures were 7.3% below the budget. A further description
of the Audit is in the attached report.
The quarterly report for the first quarter of 1980-81 reflects
a cautious -assessment of our current fiscal position. it
appears, based on the data presently available, that we can
expect to experience a small savings in salary expenses that
can be used to offset increased utility and maintenance costs.
The total expenditure estimate appears to be acceptable at this
time. The revenues are flowing slightly ahead of the anticipated
rate, however no adjustments are recommended at this time due
to the uncertain economic conditions facing the City in the
second and third quarters of this year. Further information is
contained in the attached report.
JE/pt
Referenced Audits are on file in the City Clerk's Office.
Council Action:
12-9-80 Council took no action, but received the reports presented by staff.
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'TO: CITY COUNCIL and CITY MANAGER , Nt
FROM: FINANCE DIRECTOR
SUMECT:, 1979-80 AUDIT REPORT
the purpose of this letter is to present an analysis of the 1979-80
audit: report prepared by George A. Peterson £; Co. By reviewing the
significant points presented in the audit report, the City Council is
provided with the opportimity to become better educated on issues
dealing with the City's financial function.
The purpose of the annual City Audit is to provide information to the
City Council and the City i=L-nager on the financial position and
results of operations of the City during the preceding fiscal year.
The audit report reviews and comments on internal control procedure '
and accounting practices utilized by the Finance Department.
The goals and o'ejectives of an audit. report are two fold:
1. To dorermine if the City's financial statements present fairly the
financial position and results of operations o� the City on an account-
ing basis consistent with the preceding year.
2. to deterinine compzl.<�rice with legal provisions relating to finances -
tiie iu7.ari. 4 0 Fiscal operations.
The annual City Audit actually consists of two audit reports. One
reports on the financial condition and operations of the City Water
Department. The other reports on the results of operations for all of
the ether City Amds - General fund, Special Revenue funds, Debt Service
funds, Construction funds, Trust funds and others.
The Waiter Department requires a seperate audit because revenue bonds
have been issuad by the Water Department which are special obligations
of the Cit.), socured by a lien on the. gross revenues of the Water
Department. The City is required to generate each year sufficient: gross
revenue from water operation ::o cover water operating expenditures and
the a,uival debt service requi Vement on the Water Revenue bonds. A
seperate audit: statom at insures to bond holders that •rile annual gross
revenue requirements are being met.
In effect, the annual City Audit serves as a report card on the
financial administration of the City. Utilized properly, the audit ,
report is an excellant docunent to inform and educate people on both
the financial condition and financial administration operations of the
city.
Page 2
' � 4
The analysis of the 1979-SC audit report is presented in the following
order:
1. Combined Balance Sheet - all funds fiscal year 1979-80
2. Comparat:ilre Statement of Revenues and Expenditures - by fund fiscal
year 197S-80
3. Water Enterprise Fund - statement of operations fiscal year 1979-80
4. ScJiedul.e of Trust and Agency Fund Deposits
a
5. Schedule,of Investments
6. Schedule of General Fixed Assets a•
7. Schedule of Bonds Payable
These, schedules will serve as a basis for a report on the Annual Audit that
will be presented to the City Council on December 9th. The Finance Depart-
ment will provide, an audit narrative that will .explain the significant high-
lights of the audit report. Appropriate graphics will also be utilized to
assist in the presentation.
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Combined Balance Sheet - All Funds
An analysis of the Combined Balance Sheet for all funds reveals the
following significant data by fund classification:
General Fund: Iri order to increase their base year appropriations,
Proposition 4 made it advantageous for Cities to -reduce their General
Fund balances by transferring General Funds to Reserve Funds. Two
Reserve Funds established due to proposition 4, the Capital Construction
Reserve Fund and the Maintenance and Operation Reserve Fund, have been
included in the General Fund Balance Sheet. The effect of this inclusion
has been to increase General Fund Cash and Investments assets and Fund
balance equity accounts by 5.5 million.
S_ eeccial,Revenue Funds: Special Revenue Funds include such funds as Gas
�"a.x, Sewer Construction Sanitation, Street Lighting, Revenue Sharing,
Park -in -Lieu, and Housing. Special Revenue Funds are used to account for
.the proceeds of specific revenue sources or to finance specified activ-
ities as required by law or regulations.
3.6 million is included in the Special Revenue Funds Reserve for Continu-
ing Appropriations. 1.4 million in Revenue Sharing Funds (.8 rai.11ion to
be utilized for the swimming pool) and 1.9 million in Sewer Construction
Funds (Encina Phase Three) comprise the major portion of these continuing
appropriations. The recievables and payables are primarily attributable
to the Housing and Urban Development Fund.
t,
Other Funds: Comprised of Debt Service and General Long Term Debt Funds,
Trust Vu_n and General Fixed Assets. General Obligation Bonds Outstand-
ing, primarily 1962 Sewer Sewer Bonds, at the close of fiscal 79-80
totaled $1,340,000.Payroll, Contractor and Miscellaneous Trust deposits
amounted to 1.5 million. General Fixed Assets (land, buildings, improve-
ments and equipment) totaled 6.9 million. Future capital lease obligations
(Building Authority and Library Equipment) amount to $382,000.
The Balance Sheet of the Water Entorprise Fund reflects a total depreciated
valuation of the Utility plans in service off.- 5.3 million. Liquid Assets
(cash and investments) are at a very sound level of 2.5 million, 300
of total. Water Enterprise assets. Water Revenue Bonds Outstanding,
primarily the 1970 Series A issue, total $1,457,000. Contractor contribu-
tions to the utility plant in service amounts to 2.2 million. The Water
Enterprise Funds retained earnings (Fund Balance) as of 6-30-80 stood at
3.1 million. Retained earnings are particularly high in the Water
Enterprise due to past practices of 1. not charging enough General Fund
overhead in providing services to the I*iter Department and 2. including
the cost of Capital Project Improvements to the Water System in the
annual operatijib expenses of the system.
i
Equity Fund Balance: For all funds, the Unappropriated Fund Balance
stood at 7.4 million at the close of fiscal 79-80. This amount is appor-
tioned as follows: •
General Fund (including Capital and Maintenance and Operation
Reserve Funds) - 4.1 million
Special Revenue Funds - .1 million
Debt Service Funds - .1 million
Water Enterprise Fund - 3.1 million
These Equity Balances have been applied to funding considerations in the
development of the 5 year Capital Improvement Program.
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Audit Narrative - M,.at does the Audit Report mean?
The results of fiscal 1979-80 operations are very encouraging and indicate
that the City continues to remain financially sound. The major accounting
component of the City's financial operations is the General Fund. During
1979-80, General Fund revenues amounted to 9.6 million, exceeding estimated
budgeted revenues by $179,000. General Fund operating expenditures
totaled 8.8 million, $695,000. less than appropriated. Total 1979-80
General Fund revenues exceeded expenditures by $87S,000.
This table of General Fund revenue and expenditures reveals the following
trends over the past 5 years. A.
M, S:\UES
7.5-76 %
- 76-77 %
77-78 %
78-79 %
79-80 %
SALES TAX
1.1
(20%)
1.4
(20%)
2.0
(23%)
2.4
(340)
3.0
(31-S)
PROPERTY TAX
1.4
(250)
2.8
(39 a)
3.3
(38%)
1. 5
(210)
2. 5
(26 )
INTERGMF. REV.
.5
(90)
.6
(9%)
.9
(100)
.8
(11%)
1.0
(10%)
OMER
2.6
(46%)
2.3
(32%)
2. S
(29%)
2.4
(34o)
3.1
(33%)
TOTAL
S.6
7.1
8.7
7.1
9.6
EXPMITURES
75-76 %
76-77 %
77-78 %
78-79 %
79-80 %
GENERAL GOVT.
1.6
(35%)
2.0
(34%)
2.1
(29%)
2.3
(29%)
2.7
(31%)
NON DEPT.
.6
(13%)
1.1
(199.)
1.6
(22%)
1.9
(23 Q)
1.8
(20%)
PUBLIC SAFETY
1.5
(33%)
1.8
(31%)
2.4
(33%)
2.6
(32a)
2.9
(33%)
PUBLIC WORKS
.9
(19%)
1.0
(16%)
1.2
(169.)
1.3
(16%)
1.4
(16%)
TOTAL
4.6
S.9
i;`
7.3
^ { .
8.1 8.8
NET
RMTMIES
1.0
1.2
1.4
(1.0)
" .8
L' ENDITURES
FIGURES IN
MILLIONS OF DOLLARS
4
Revenues
The General Fund is becoming, more dependent upon Sales Tax revenue and '
less reliant upon Property Taxes for its revenue base. This is a natural
result of proposition 13 tax limitations. Intergovernmental revenue -
(State apportionments) have remained steady while other revenue (charges
for services, investment earnings, transient tax) etc.) have become more
an increasingly important revenue base.
Expenditures
Total General Government expenditures have remained a relatively constant
30% of total General Fund expenditures. Expenditures for Public Safety
also have remained steady at 330 of total General Fund expenses. Public
Works expenditures continue to hold at approximately 10 of General Fund
total expenses. Non -Departmental expenses (retirement, insurance, capital
improvements) amounts to approximately 20.1 of General Fund expenses.
The following graph illustrates the General Fund revenue and expenditure
trends during the last 5 years.
General Rmd
S Year Comparison of Total Operating Revenue and Expenditures
10
wj
8
HILLIO,\1S
OF
DOLLARS 7
[.1
S
Iy� 75-76 76-77 77.78 78-79 79-80
--•------ Revenues
..._ .�.._... Rwallditures
t
A comparison of the revenue and expenditure trends for
the other
funds in
the City's financial operations during the
last 5 fiscal years is
summarized
as follows:
FISCAL YEAR
75-76
76-77
77-78
78-79
79-80
SPECIAL RE'iENUE FWDS:
REVENUE
1.2
1.2
1.4
1.7
2.8 ,s
EMIENDITURES
.9'
.9
1.2
1.5
,
2.3
NET
.3
.3
.2
.2
„...5
SEWBR CONSTRUCTION FUNDS:
REVENUE
.2
.6
,.4
.3
.1
10TMITURES
--
--
.1
.4
.2
{
NET
.2
.6
.3
G 1)
t.1)
BOND REDEWTION FUND",:
REVENUE
.1
.2
.2
.2
.2
EXPENDITURES
.2
.1
.1
.1
.1
NET
G 1)
.1
.1
.1
.1 `
WATER ENTERPRISE FUNDS:
REVENUE
1.3
1.3
1.4
1.5
1.8
EXPENDITURES
.9
1.0
1.1
1.4
1.4
NET
,4
.3
.3
.1
.4 `
FIGURES IN
MILLIONS
0P DOLLARS
Water Enterprise Fund
Fiscal 1979-80 operating results for the Water Enterprise Fund are also
encouraging. Operating income of $158,000. was generated from operating
revenues of 1.49 million and operating expenditures of 1.33 million. C}ty
Water Revenue Bond Resolutions require that the {dater Enterprise Fund
annually generate sufficient net revenues to insure that the dent service
annual requirement for the Water Revenue Bonds are met. During 1979-80,
the Water Enterprise Fund generated sufficient net revenues to fulifill
the revenue bond debt service requirement.
Water operating income of $158,000. was increased by non -operating
revenue of $315,000. resulting from investment earnings ($233,000.)
and sales of fixed assets ($82,000.). Operating -income was reduced by
$77,000. due to non -operating expenses for bond interest and fiscal.
agent fees. The net effect of the non -operating revenues and expenses
served to increase the Water Enterprise Fund net income during fiscal
1979-80 to $396,000.
The following graph summarizes the Water Enterprise Fund Revenues and
Expenditures during the last five fiscal years.
Water Fnterprise Fund
S Year Comparison of Operating Revenues and Expenditures
r'
2.0
1.7S
i
t 1.50
MILL10NS
OF
DOLL416
1.25
'S
a
\1.0
FISCAL 75-76 76-77 77-78 78-79 79-80
Yr:AR
-Revenues
Expenditures
FISCAL YMR
REVEIdUISS
EXI>F1vM URFS
75-76
1•,257,334.
886,233.
76-77
1,271,153.
993,602.
77=78
1,388,195.
1,114,962.
78-79
1,474,138..
1,406,443.
79-80
1,806,817.
1,411,132.
T
City of Carlsbad »
Schedule of Trust and Agency Fund EMosits
June 30, 1980
Sewer Revolving Fund 61,408.
Trust Funds - Payroll 150,000.
Trust Funds - Miscellaneous 531,345.
Trus'c Funds - Contractors 778,335.
TOTAL: Trust and Agency Fund Deposits 1,521,088.
•
4.
IN
y.
City oof Carlsbad
Schedule of Investments
June 30, 1980
IWESWENT TYPE AMOUNT %
of TOTAL
Certificates of Deposit 7,275,000.
55% ,
Federal Farm Credit Bureau Notes 1,100,000.
8%
Bankers Acceptance Notes 2, 444, 271.
18% '
State of California - Local Agency
Investment Fund 2,511,998.
19%
TOTAL INJESTNIENTS,: June 30; 1980 13,331,269.
100%'
Cextific,tes offDDeposit - Typical rates paid by major banks
on new issues
oTnego —negotiable Cer— ti ates of Deposit.
Federal Farm Credit - Government backed instruments utilized
to purchase
mortgages from b- awn cs - Federal Land Bazflc Bonds.
Bankers Acceptances - Negotiable, bank backed business credit
instruments
typically -financing an import order.
State of California - Local A ency Investnknt Fund - Agency
agreement with
State of Galil6rnza whereby Carlsbad maxim z� es iHbrest return of short
term cash float through State pooling of municipalities short
term funds.
CITY OF
CARLSBAD
'
SCHEDULE OFCI�:dLRAL FIXED
r •
Year ended June, 30, .1980
i•
Balance
Balance
June 30, 1.979
Additions Disposals
June 30, 1980
Land
$ 333,885
$ 100,895 $
$ 434,780
Buildings
689,985
485, 807
�l,i 75, 792
.Other improvements
2,480-,139
267,,820
2,747,959
Furniture
and equipment
1,.947, 289
'
149,521118,13?.
1, 9"78, 678
Lease property
-
under capital
lease (Note ,6)
562,226
_
562 226
-- ---
Total general
fixed assets
�. - r
•s0,013,524
$1,004,043 $17.8, 1.32
$6, 899 431 .
, _
1 11
e
t
. , I
4
'City of Carlsbad
• Schedule of Bonds P_ ayable
June 30, 3.980
TYPE AMOUNT % to TOTAL
General Obligation Bonds
1962 Sewer Bonds Series A 310,000. 23 ,
1962 Sewer Bonds Series B 600,000. 45
1962 Sewer Bonds Series C 240,000. 3.8
1966 Library Bonds 190,000. 14
TOTAL: General Obligation Bonds Payable 1,340,000. 100%
• Water Revenue Bonds
1958 Waterworks Revenue Bonds 367,000. 25
1960 Watex<"rorks Revenue Bonds 225,000. i5
1970 Waterworks Revenue Bonds Series A 865,000. 60
TOTAL: Water Revenue Bonds Payable 1,457,000. 100%
0
November 5, 1980
TO: City Manager
FROM: Finance Director
SUBJECT: Quarterly Report - First Quarter 1980-81
Introduction
This report is intended to give an overview of the fiscal operations of the
City of Carlsbad during the first quarter of 1980-81. This is done in two
sections; Revenues and Expenditures. Both sections show the relationship of
current operations (through September 30, 1980) in relation to prior years
experience and projected balances for 1980-81.
The revenues for 1980-81 appear to be flowing well in comparison to both prior years
and current estimates. there are no significant problems in the general fund and
most other funds seem to be either keeping pace with or running slightly ahead of
estimated year end figures.
The rate of expenditure for operating at the end of the first quarter of fiscal
i980-81 is slightly below the expenditure rate generated in fiscal 1979-80. Ex-
penditures for salaries and maintenance & operation are well within their budgeted
appropriations, with the exception of Utility expenditure accounts. The overall E
level of expenditure suggests that the City will experience a salary savings of
2 this fiscal year while overall maintenance and operation expenditures will fall
within their appropriation limitations. The utility expense accounts will require
close monitoring to assess the impact of proposed utility rate increases. ;
E REVENUES
General Fund
The General Fund revenue for the first quarter of 1980-81 is $1,899,150 or about 18%,
of the total $10,741,000 estimated in the budget. This compares well with the first
quarter of 1979-80 where about 14% of total revenues of $9,586,000 had been received.
During the past four years, as the City depends less on property tax and more on other
sources of funds, the percentage of total revenue received in the first quarter of each
year has grown. Property taxes are disbursed twice a year in relatively large blocks.
As the property tax plays a smaller role in the City's financial picture, the quarterly
revenues will approach 25% of the annual total revenue (Figure 1).
Y
FIGURE 1
' PERCUNT OP TOTAL R1*VPN(1H
•
wH)'Cl"IVl:D - FIRST OUAR"FUR
GOHMAL MIND �
E of Total
Revenue
Received{•`�*
�,�'
20 t.+
is
10
_
1
As the importance of property
tax decreases, the quarterly
distribution of revenue begins
to flatten out.
In 1976-77 only 8.4% of the
total General Fund Revenue was
received in the first quarter.
By 1980-81 the percentage has
climbed to 17.7%.
1976-77
1977-78
1978-79 1979-80 1980-81
TOTAL
1ST QUAl2TF.R PF.RCHNT
1980-81
10,726,000
1,899,150 17.7•
1979-80
9,S8S,975
1,330,M 13.9
1978-79
7,191,105
92S,314 12.'3
19077,-78
8,7S2,321
791,690 9.0
1976.77
7,109,9SS
S96,517 8 A
The primary factors in
the General Fund Revenue-' il`ture—(Figure 2) are sales tax
and property tax. These
two sources amount,,to 62% of
M
the itotaJ1 General Fund Revenue
base.
_.
FIGURE 2
General Fund Revenues
Sales
Tax 33%
Property Tax 29%
Other '38%
2
2D
M
10
f
t
S
'5
1990-8{
1979-80
19T8-79
1977-78
1976-77
Sales taxes are very dependent upon the regional economic climate. The current
estimate of $3,550,000 for sales tax was based on three factors: the opening of
another major store at Plaza Camino Real, inflation of about 10% to 12% and a
real increase in dollars spent in Carlsbad of about 10110. If the economic climate
in Carlsbad does not satisfy these assumptions, the sales tax revenue will be less
than estimated.
To date, sales tax revenue has been on target. Compared with previous years we
would expect to see approximately 20% of the annual revenue received in the first
quarter (Figure 3). This year a total of $772,357 or about 22% of the estimate
has been received by September 30. Although this is a good sign, a severe turn
down in conditions for sales in the second quarter could reduce sales tax revenue
in the third quarter to lower than anticipated levels. These trends are difficult
to verify prior to the State Board of Equalization disbursement of tax revenues
which takes place two to three months after collection.
FIGURE 3
PERCENT OF TOTAL SALES TAX REVERVE RECE1lE0
FIRST QUARTER
GENERAL FUND
1976-77 77-78 78.79
79.80
80-81
Total Sales
Tax Pcvenur
First wrtnr
t
3,550.000 (est.)
772,357
21.8
2.959,586
631,100
21.3
2,389,832
474.663
20.0
1,967,968
298,222
15.2
1.402.841
251,109
17.3
$s0o,000
$400,000
$300,000
t200,000
1200,000
3
SAM'S TAX RI'l'1EMIF
l"FCM11 11Y ?M!
r-MAL WAR 15179-S0 ;, l�riSlt-S!
July Aug. Sent. Oct. Nov. Dec. Jan. Feb. Afar. Ann, May Juno
Fiscal MAO
Fiscal 90.81
i
i
Property taxes are disbursed by the County in two payments in December and April
each year. The estimated revenue of $3,1 million has been based on an assessed
value of $361 million for the City of Carlsbad. By the end of next y.,arter we
should be able to comment on the accuracy of this estimate.
The other General Fund Revenues, on a percentage basis, appear to be tracking
slightly ahead of the first quarter of last year by roughly 6% to 7%. This dif-
ference appears to be primarily due to interest received from investments maturing
during the first quarter of 1980-81. Last fiscal year had relatively few invest-
ments maturing during the first quarter and therefore had very little interest
revenue received in that time period. This year, interest rates are running 4%
to 6% below last year's level. We can assume, then that unless there is a signifi-
cant upturn in rates during late 1980-81, this apparent increase in interest revenue
will be offset by lower receipts in the next three quarters.
On the whole the receipt of General Fund Revenues compare well with past years. The
total estimated revenues of $10,741,000 appears to be relatively good based on infor-
mation available to date. Additional information is contained in Exhibit 1.
Other Funds
Revenues in the other City Funds are generally slightly ahead of last year's pace.
The funds of major interest at this time are the Gas Tax Fund, Sanitation Fund,
Street Lighting Fund, Sewer Construction Fund, Revenue Sharing Fund, Public Facil-
ities Fund and the Park -in -Lieu.
Gas Tax - During the first quarter of 1980-81 the State distribution of gas tax
revenues has been slightly ahead of our projections. This year's estimate of
$333,400 was based on data provided by the State reflecting a decrease of about 12%
in State Gas Tax Revenue for 1980-81 from the prior year. This decrease may yet be
realized if gasoline prices soar during the winter months thereby reducing consumption.
The`1980-81 estimate is conservative and should not be amended at this time.
Sanitation - The Sanitation Fund is of special interest due to its nature. Sewer
rates were set in October 1979 by Council resolution. These rates are the sole
support of the sanitation fund and therefore must be watched closely to insure that
major under -or overruns do not occur. At present, sewer revenue is running at an
annual rate of $567,000 or about 6% ahead of the budget estimate of $533,000.
Street Lighting - This is a special fund supported by assessments against property
in Carlsbad. The distributions to the City are made by the County as taxes are
collected. To date, only minor delinquent payments have been received. The total
estimated revenue figure of $290,500 is based on assessments of about $280,100 and
City contributions of about $10,400. The major factor in the condition of the
Street Lighting Fund at this time will be the S.D.G.& E. rates applicable to street
lighting. If these rates increase significantly over the next nine months, further
assessments or general fund support will be necessary, ,
4
Sewer Construction - The 1980-81 estimated revenue of $700,000 is based on the
sale of 700 EDU's at $1,000 each. To date 177 EDU's or about 25% have been sold.
In addition, about $20,000 in interest earnings have been recorded in the first
quarter. The estimate of 700 EDU's still appears to be reasonable according to
the City Engineer. The total revenue, however, should be adjusted upward by about
$60,000 to reflect interest earnings in 1980-81. In addition, the City has now
implemented a sewer surcharge that will yield approximately $28,500 per month for
the rest of 1980-81, or about $256,500. These adjustments will raise the total
sewer construction fund revenue to about $1,016,500.
Revenue Sharing - The future of the revenue sharing program is presently clouded
by the•failure of Congress to pass funding legislation prior to the election recess.
The November session must now take up this question. Differences exist in the
House and Senate versions of the revenue sharing bill that may cause further delay.
The estimate of $530,000 for Fiscal 1980-81 was based on four quarterly payments
plus interest earnings. If the payments are not forthcoming, this figure would be
reduced to as little as $160,000, one payment plus interest. This will impact the
CIP.process by removing as much as $500,000 per year from available funds.
Public Facilities Fee - The 1980-81 estimate of $67,500 for Public Facilities Fees was
based on the 1979-80 activity plus a small inflation factor. This is obviously not
a scientific method for determining revenues and does not reflect planned development
for 1980-81. During the next quarter, we will devise a method for forecasting public
facilities fees that will take into consideration the development climate. Revenues
to date are running slightly ahead of the projection. This estimate will be adjusted
next quarter when more useful data will be available.
Park -in -Lieu - The Park -in -Lieu Fees are very similar to public facility fees in their
rglationship to development. As we create a PFF forecasting model, the PIL fees can
also be estimated. To date, the PIL revenue is slightly ahead of the estimate. As
with the PFF, the PIL estimate will be revised next quarter.
OPERATING EXPENDITURES
,General Fund
At the close of operations for the first quarter of fiscal 1980-81, General Fund Ex-
penditures for Salaries and Maintenance and Operations purposes totalled $2,145,200,
amounting to 21% of the fiscal 1980-81 General Fund appropriation for these services.
General Fund salary expenditures totalled $1,263,599, 212 of total budget, while
General Fund Maintenance and Operations expenditures amounted to $881,601, 20% of
total fiscal 1980-81 budget. The rate of expenditure during the first quarter of
1980-81 compared favorably with the rate of expenditure during the first quarter of
1979-80. At the end of the first quarter of fiscal 1979-80, total General Fund
expenditures for Salaries and Maintenance and Operations ►vas $1,737,757, or 2200 of
the 1979-80 total annual expenditures.
r
lilt
00
sO
The rate of General Fund expenditures at the end of the first quarter 1980-81
needs to be analyzed with the following considerations. The 21% pace,of expend-
itures for salaries reflects the recording of six of twenty-six payroll periods
during the first quarter. In effect, 23% of the City's total year payroll lia-
bility has occurred during the first quarter, while the expenditures have totalled
21% of the fiscal year appropriation. The 2% spread between liability and actual
expense indicates that the City is experiencing the same level of turnover and
salary savings as occurred in fiscal 1979-80. If the 2% salary savings trend
holds consistent throughout 1980-81, total year General Fund salary savings of
t�pproximately ,$118,000 would be realized.
The rate of expenditures for General Fund Maintenance and Operations purposes at
the close of the first quarter stood at 20% of the total fiscal year appropriation.
The actual recording of maintenance and operations expenditures lags approximately
5% behind the true expenditure rate. This lag factor is associated with the paper
flow process involved in recording expenditure authorizations issued by purchasing
onto the expenditures accounts through the accounts payable process in Finance.
Eliminating the 5% lag factor in recording expenditures coupled with the 20% rate
of Maintenance and Operations expenditures totals a 25% true rate of M & 0 expend-
itures for the General Fund through the first quarter of fiscal 1980-81. A com-
parison of fiscal year 1979-80 and 1980-81 is shown in Figure 4.
FIGURE 4
G11N1:R4L_FIIND OPPRATIONS
)MPEN1111'UR11s BY MONTH
. - FISCAI. Y-PAR 1979.80 P, 1980-81
July Aug Sept Oct Nov --_,Dee Jan Fob liar Apr flay June
1979-80
1980.81
J
j
MONTHLY EXPRNPITURE
LEVELS - GENERAL FUND
w 1
1979-80
r
,
t
1980-81
July
401,447
July 700,553
Aug
771,349
Au}; 624,192
Sent
618,873
Sept 820,4SS
Oct
702,638
;
Nov
820,134
" Dec
654,532
Jan
649,706
Feb
498,226
liar
614,739
Apr
508,785
May
1,077,648
,111110
804,474
Other Funds
The .level of expenditures in the Sanitation & Water Pollution Fv-d totals
$109,742, or 21% of the fiscal 1980-81 appropriation at the clos.-of the first
quarter operations. These figures are significantly lower than the level of
1979-80 expenditures which stood at $205,266 or 40% of budget as of September
30, 1979. The primary reason for this decrease in the rate of expenditure is the
reduced payments in the Water Pollution Professional Services Account associated
with the Encina Water Pollution Control Facility Expenses.
Expenditures in the Street Ljqj]ting Fund totals $59,335 as of September 30, 1980,
or 20% of the total fiscal 1980-81 street lighting appropriation. This figure is
significantly higher than the level of 1979-80 expenditures which stood at
$33,513 as of September 30, 1979. This increase in expenditures is attributable
to sharply increased rates for energy, a topic which is discussed in the next
section of this expenditure analysis.
Expenditures for Housing and Redevelopment total $156,935, or 25% of the 1980-81
appropriation for that function as of September 30, 1980. The City is accounting
for all of the Housing and Redevelopment activities as part of the City's financial
statements for,1980-81. During 1979-80, the total Housing and Redevelopment oper-
ations were accounted for separately T om the City's financial statements.
Utility Expense - Expenditures for utilities, specifically gas, electricity and
water, have risen dramatically during the 1st quarter of fiscal 1980-81 as compared
to fiscal 1979-80. Recent rate increases granted to S.D.G.&E. of 25% in April,
1980 and 37.6% in July 1980 are indicator., of the increased level of expenditures
required of the City to meet its energy needs. Additionally S.D.G.&E. has a 50%
rate increase before the P.U.C. scheduled for implementation in January 1981. This
increase would add about $250,000 to the City's utility costs by the end of 1980-81.
(Figure 5).
FIGURE 5
1980-81 Actual and Projected Accumulativ
Level of Expenditures for Utilitios-All Funds
600,
1000
200,E
Utility
^'- 1980-81 Current Level of Expenditures {
`-' ^-- —1980-81 Projected Level of Utility !
Expenditures-50t Fate inc.Jan.81"
The current rate of expenditures for utilities at the close of the lst quarter
1980-81 suggests that, even with further rate increases for 1980-81, that the
General Government Administration Department will require an additional appro-
priation of $12,868, while the library wil"1 require an additional appropriation
of $14,424 to cover their 1980-81 utili'ty expenses. Total General Fund expend-
itures for utilities during the first quarter of 1980-81 amount to $51,990, an
increase of 44% over the level of first quarter 1979-80 utility expenditures.
Utility rate increases have significant impact upon expenditures for street
lighting. During the first quarter of 1980-81, utility expense for the street
lighting.fund amounted to $74,937, or 59% above the level of 1979-80 expenditures
for the same period. Based upon first quarter 1980-81 expenditure levels, the
street lighting fund will require an additional appropriation of $55,122 to cover
its total 1980-81 energy costs. The condition of the utility expenditure account
will be monitored very closely during fiscal 1980-81 to assess the impact of pro-
posed rate increases upon the departmental expenditure accounts. The Utilities
Maintenance Director is aware of this problem and has indicated that either increased
assessments or additional General Fund support will be•necessary.
The General Government Administration Communication Expense Account is utilized to
pay for the telephone expenses of the City Hall Centrex System. At the end of
the first quarter of 1980-81, this account was being expended at an annual rate of
$45,160 or 139% of its total year budget. This expenditure trend would require an
additional appropriation of $12,660 to cover the City Hall communications - -telephone
expenses ft.- fiscal 1980-81.
O�eratinq Expenditure Summary - All Funds
The level of expenditures for all funds at the end of the first quarter of fiscal
1980-81 operations totals $2,475,221 amounting to 20% of the total fiscal year
operating appropriations. This expenditure rate is slightly below the total rate
of expenditure experienced during the first quarter of fiscal 1979-80, which stood
at 22% of total year budget. The rate of 1980-81 expenditures is very acceptable
and suggests the following:
A 2% salary savings projection will continue to be realized.
Maintenance and Operations expenditures are on target for the
fiscal year with the exception of utility and Communications
expense which are projected to require additional appropriations
for all funds totaling $95,074 barring further utility rate in-
creases.
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MEMORANDUM ,
November 25, 1980
TO: CITY MkNAGER ..
FROM: FINWCE DIREOM
STTJBJECT: 1979-80 AUDIT MAAG LETTER
Each year the City's auditors prepare a management letter commenting on
internal control procedures and accounting practices used by the Finance
Department. ibis memo is in respa se to this year's management letter.
4 •
Prior Yeats Findings Not IMLlemented
The auditors commented on four recoimi endations made in previous years
that 'have. not been implemented:
1. Checks shall be listed 'individually on the outstanding check lasting
(Bank Reconciliations). - Although the :listing of checks individually on
bank reconciliation work sheets is much more convenient for the audit staff,
it is a time consuming process for the account clerk assigned this tas'_c.
However., we can and will comply with this request,
2. 11ater•Perpetual Inventcny Records Sy,tem should be improved. - The
Finance and Water Departments are very aware of the past shortcomings of
.the water inventory function. The present clerk in the Waiter Department
has had experience with these -records and has been able to improve the
record keeping function. tie will be .corking with the Water Superintendant
to improve the process for purchasing and disbursing items from the water
stores inventory.
3. The Encumbrance Records have not been balanced and updated on a
regular basis. = This problem is of particular importance at year end.
When these records are not reconciled regularly, it significantly increases
the effort required of. our Auditors and City Staff during year end
closing. This function has been taken over by- the Accountant and Assistant
Finance Director. I feel we will have ro furthrr problems with the
accounting for oncwnbrances at year and.
h. Tile City should consider microfilming old accounting records. - I
feel this is one of the most inj)ortant projects the City must undertake.
The City Clerk is ready to take over the records management function for
the entire city as soon as possib1c. 1111s will include microfilming and
record retention standards.
i
r
Page 2 N
Current Year Fin!iims
The following comments were made by the Audit Staff this year.
1. Contractor Deposits -
Deposits are collected from contractors to cover the cost of City services
performed by the Building and Engineering Department. The intent is that
department's current operating exTenses would be offset by a transfer at
the close of the project from the deposit account. We have noted instances
where some large deposit balances have remained unchanged for over one
year.
We recommend that a periodic review of the aging of these deposits bc'
made and thata follow-up to the appropriate departments for reasons why
the old deposits have not been closed out.
Response - I concure with the Auditors in this finding. 'li►ere are many
constractors deposit accounts which should be closed and removed from our
books. In order to close these accounts it is necessary for Engineering
to review their contract files to collect any charges that should be
made against these deposits. Although some accounts have been closed,
others still e�cist that require attention. A list of all deposits is sent
to Engineering each quarter for review. Mien the Engineering staff has
had time, they have reviewed these lists and closed several projects. We
will work with Engineering to try to eliminate the inactive accounts and
-to properly account for the current deposits.
2. Water Department Billing -
During May of 1080, the finance Department discovered that approximately
four hundred customers were not being billed for sewer service charges.
Investigation by the City's staff revealed that these customers were part
of the Costa Real Municipal Water District (MMID) in South Carlsbad and
that then were new customers of that district. Procedures in effect at
that tine were that the CMNAM was to notify the City of Carlsbad of new
water service hook-ups on a periodic report. Based upon what transpired,
it was evident this was not done.
Considering that the sewer moratorium has been lifted in the area and the
increased level of new development that will result, we'recoimnend the
following procedures. The existing periodic report could have merits if
the City makes follow-up coilaunication with CIUM when the report is not
received when due. 'Me City should clarify it's understanding with C121.1M
of the reporting schedule. '111e City should review all building permits for
the involved areas and compare them to the report received from ClhtiM for
possible missing items.
Wage 3
ti
Response - This is.a point the Manager, Utilities Maintenance Director M,
and Finance Director have commented on for sometime. There is, at this
point, no free flow of information from CR'%SVD to the City when new
residents move into the southern section of Carlsbad. '11iis makes it
very difficult for the City to properly bill this area. Tiiis-particular
problem was discovered by the sanitation services supervisor and the
water billing staff when information concerning occupied homes and
billing accounts were compared.
The Auditors are assuming that CPmffl and the City had an established
procedure whereby CR,viiVD notified the City on a monthly' basis of all
service starts and stops. This system, however, does not exist and has
never been established on a regular basis. Several years ago the water
billing staff had received information from 0%'RVD or had requested such
information but, to my knowledge, no data sharing has taken place.
In my opinion there are three possible solutions. First, the ideal situ -
anion would be to have one entity responsible for yZ1 utility g
in the entire ethi.srresul t Second, data could be shared betcaeen. the
d in an. action
that ti•�ould achieveve
C14VD and the City, as suggested— y--tTe Auditors. I can raise this
question with the C&AVD aka a eri )7 a i.c idaddressesector appearotodbeccasionoccupied
ally run ,through the
to
and which - ppear to be vacant.
I prefer options one or two. I will consult M rMeadows
to discuss the
agency
possibility of sharing information untilquestion
responsibility can be settled.
3. Cash -
pensation bank
During our exambiation of tileawarrant
accounts, Ave noticed a c amount�of timeswasmrequired by the
The reason
cashier to reconcile these accowits to the bank statements.
for this is because the bank doesnot have chk thechecks numearelpxoperly isted oil the included
bank statement and thatfrequently
in that statement.
It is care p practice today
intthebankcck numbers
tatement.listed
Based up nthat
the City's
checks are properly included
large cash dealings and balances with Bank of America we recommend that
the City request better service from that bank.
Response - I have contacted the bank and have arranged to have all check
numbers listed on the stateale •
Page 4 N
4. General Ledger. Control Accounts
The proof listing prepared by the payable clerk periodically is changed
by the general ledger accountant for required adjustments before the
general ledger control figures for expenditures are entered. The control
figure must equal the detail as between prior and current year expenditures.
Currently, there is no established procedures for correcting the detail
accounts as the control accounts are adjusted. We recommend that this
area be evaluated and a standard accotuiting procedure be implemented.
Response The Auditors have brought the problem of unbalanced entries
to detail and control accounts to my attention. I have discussed this
with the Finance Department staff and believe we have corrected the problem.
S. Donated Water Equipment -
Engineering Department is supposed to receive "as built plans" with cost
schedules from developers so they can compute the total cost of donated
water equipment and transmission lines. This information is added to the
City's cost records for Seater Department fixed assets. This year no
total costs figures were compiled by the 1:1ater Department. Ile recommend
that during the ensuing year when increased building is expected, the
Water Department insure adequate records are maintained to calculate
total costs of donated equipment and transmission lines.
i Response - The Engineering Department is responsible for providing an
` annual list of all donated improvements to the water system (subdivisions
' and other developments). I have asked my staff to work with Engineering to
inform them of what is needed and when the data should be prepared.
G; hater Department Cost Accumulated fL r Projects in Progress -
+. All costs of constn-uction of transmission and distribution lines, booster
pumps, etc. where the City staff performs the labor and supplies the
equipment must be accianulated by project. At. the end of this year, the
Finance Department had considerable difficulty determining the status of
projects in progress.
We recommend that the Water Department and the Finance Department jointly
determine the format and information necessary to control the projects in
progress.
Response - The Water and Finance staff members are aware of: this problem.
Many of the problems that now exist have come about through turnover in
• Water staff and insufficient training offered by the Finance staff. I feel
tliat we have the problem identified although not yet solved. We must now
-properly train, the water and Accounting, staff in the proper use of the
work in progress accounting proceeduros. I believe our auditors would be
willing to assist us in establishen,(; the proper system.
Jr.:pt
GEORGE A,PETERSON & CO
CERTIFIED PUBLIC ACCOUNTANTS
OCORGE A,PCTCRSON,C.P.A, 7916 IVANHOE AVENUE
RICHARO C,CVANS,C.PA, LA JOLLA, CALIFORNIA 92037
THOMAS J. ORADY,A, P.0 ,C.P A, TELEPHONE (714) 454.6176
OCNC A.NONRAD,C. P.A.
Honorable City Council
City of Carlsbad
MCMBERS
AMERICAN INSTITUTE OF
CERTIFIED PUBLIC ACCOUNTANTS
CALIFORNIA SOCIETY OF
CERTIFIED PUBLIC ACCOUNTANTS
We have -examined the financial statements of the City
of Carlsbad for the year ended June 30, 1980, and have issued
our report thereon dated October 12, 1980. As part of our
examination, we made a study and evaluation of the City's
system of internal accounting control to the extent we
considered necessary to evaluate the system as required by
generally accepted auditing standards. Under these standards,
the purposes of such evaluation are to establish a basis for
reliance on the system of internal accounting control in
determining the nature, timing, and extent of other auditing
F.
procedures that are necessary for expressing an opinion on
the financial statements and to assist the auditor in planning
and performing his examination of the financial statements.
The objective of internal accounting control is to
provide reasonable, but not absolute, assurance as to the
safeguarding of assets against loss fron unauthorized use
or disposition, and the reliability of financial records
for preparing financial statements and maintaining account-
ability for assets. The concept of reasonable assurance
recognizes that the cost of a system of internal accounting
control should not exceed the benefits derived and also
recognizes that the evaluation of these factors necessarily
requires estimates and judgments by management.
There are inherent limitations that should be recognized
in considering the potential effectiveness of any system of
internal accounting control. In the performance of most
control procedures, errors can result from misunderstanding
of instructions, mistakes of judgment, carelessness, or other
personal factors. Control procedures whose effectiveness
depends upon segregation of duties can be circumvented inten-
tionally by management either with respect to the execution
and recording of transactions or with respect to the estimates
and judgments required in the preparation of financial state-
ments. Further, projection of any evaluation of internal
accounting control to future periods is subject to the risk
that the procedures may become inadequare because of changes
in conditions and that the degree of compliance with the pro-
cedures may deteriorate.
Our examination of the financial statements was made in
accordance with generally accepted auditing standards, inclu-
ding the study and evaluation of the City's system of internal
accounting control for the year ended June 30, 1980, that was
made for the purposes set forth in the first paragraph of this
report, would not necessarily disclose all weaknesses in the
system because it was based on selective tests of accounting
records and related data.
The foregoing conditions were considered in determining
the nature, timing, and extent of audit tests to be applied in
our examination of the financial statements, and this report
of such conditions does not modify our report dated October 12,
1980 on such financial statements.
For your convenience and reference, the topics presented
in this letter are summarized as follows:
Contractor Deposits
Water Department Billing
Cash
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General Ledger Control Accounts
Donated Water Equipment
Water Department Cost Accumulations for
Projects in Progress
Previous Recommendations
We reviewed the disposition of recommendations included
with out letter of September 4, 1979. The following is a
summary of prior year's recommendations and their status at
October 12, 1980.
A. Adopted and Implemented
1. Computer Output.
2. Fixed Assets Inventory.
3. Year end Cutoff of Check Register.
t
B. Adopted and implementation in Process
1. Computer Operations and Controls
The City is now in the process of
contracting for new computer equipment and
software programs. The City is considering
a data processing manager.
C. Not Adopted or Implemented
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1. Checks Listed Individually on Outstanding
Check List,
2. Water Department Perpetual Inventory Records.
3. Balancing and updating encumbrance records.
4. Microfilming of Old Accounting Records.
We again want to emphasize the importance we feel in the
above unadopted comments. This year, as in the previous year,
many hours were required by us and the City Staff to reconcile
the encumbrance balance at year end to the outstanding purchase
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orders and to reconcile the prior year expenditures to the
change in the prior year encumbrance balance.
The Water Department perpetual inventory records did
not reflect the purchases and issues of the equipment stock.
It is important to have good records on this expensive equip-
ment.
Current Recommendations
Contractor Deposits
Deposits are collected from contractors to cover the
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cost of City services performed by the building and engi-
neering department. The intent is that department's current
operating expenses would be offset by a transfer at the close
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of the project from the deposit account. tie have noted
instances where some large deposit balances have remained
3
unchanged for over one year.
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We recommend that a periodic review of the aging of
these deposits be made and that a follow-up to the appro-
priate departments for reasons why the old deposits have
not been closed out.
Water Department Billing
During May of 1980, the finance department discovered
that approximately four hundred customers were not being
billed for sewer service charges. Investigation by the
City's staff revealed that these customers were part of
the Costa Real Municipal Water District (CRMWD) in South
Carlsbad and that they were new customers of that district.
Procedures in effect at that time were that ti.a. CRM6rp was
to notify the City of Carlsbad of new water service hook-ups
on a periodic report. Based upon what transpired, it was
evident this was not done.
Considering that the sewer moratorium has been lifted
in the area and the increased level of new development that
will result, we recommend the following procedures. The
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existing periodic report could have merits if the City makes
follow-up communication with CRMWD when the report is not
received when due. The City should clarify it's understanding
with CRMWD of the reporting schedule. The City should review
all building permits for the involved areas and compare them
to the report received from CRMWD for possible missing items.
Cash
During our examination of the warrant and workmen's
compensation bank accounts, we noticed a considerable amount
of time was required by the cashier to reconcile these accounts
to the bank statements. The reason for this is because the
bank does not have check numbers listed on the bank statement
and that frequently not all the checks are properly included
in that statement.
It is common practice today that check numbers are
listed and that all checks are properly included in the bank
statement. Based upon the City's large cash dealings and
balances with Bank of America, we recommend that the City
request better service from that bank.
General Ledger Control Accounts
The proof listing prepared by the payable clerk
periodically is changed by the general ledger accountant for
required adjustments before the general ledger control figures
for expenditures are entered. The control figure must equal
the detail as between prior and current year expenditures.
Currently, there is no established procedures for
correcting the detail accounts as the control accounts are
adjusted. We recommend that this area be evaluated and a
standard accounting procedure be implemented.
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ti s
Donated Water Equipment
Engineering department is supposed to receive "as
built plans" with cost schedules from developers so they
can compute the total cost of donated water equipment and
transmission lines. This information is added to the
City's cost records for water department fixed assets.
This year no total costs figures were compiled by the
Water Department. We recommend that during the ensuing
year when increased building is expected, the Water
Department insure adequate records are maintained to
calculate total costs of donated equipment and transmission
lines.
Water Department Cost Accumulated For Projects in Proqress
All costs of construction of transmission and distri-
bution lines, booster pumps, etc. where the City staff per-
forms the labor and supplies the equipment must be accumulated
t by project. At the end of this year, the Finance Department
had considerable difficulty determining the status of projects
in progress.
We recommend that the Water Department and the Finance
Department jointly determine the format and information
necessary to control the projects in progress.
GEORGE A. PETERSON & CO.
ichard E. Evans, Partner
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