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HomeMy WebLinkAbout1993-08-10; City Council; 12351; ACCEPTANCE 1991-92 SINGLE AUDITh t a w 0 > i3z 1 :-'b 3 z 0 F 0 a 6 2 3 0 0 Clu OF CARLSBAD - AGEWA BILL <? $1 AB # /2! 3 5/ TITLE: DEPl MTG. 8/10/93 ACCEPTANCE OF THE 1991-1992 SINGLE AUDIT CITY DEPT. F1N CITY RECOMMENDED ACTION: Accept the 1991-1992 Single Audit report. ITEM EXPLANATION: In October 1984 the U.S. Congress enacted Public Law 98-502, comonly known as tl Single Audit Act of 1984. Under this Act, local governments receiving federal financi assistance exceeding $100,000 in a fiscal year must arrange for independent auditors 1 perform a Single Audit. The City of Carlsbad retained KPMG Peat Marwick for fiscal ye; 1991-1992. The Single Audit Report is a collection of several documents which includes the Schedul of Federal Financial Assistance and various other reports on compliance with laws an regulations. The general purpose financial statements, contained in the Comprehensil Annual Financial Report (CAFR) are also considered part of the Single Audit. The CAF was presented and accepted by the City Council in January 1993. In fiscal year 1991-1992, the City incurred expenditures eligible for federal reimbursemen totalling more than $2,6 million as reported on the Schedule of Federal Financial Assistancc The Section 8 Housing Assistance Programs (Existing Certificate and Voucher) account fo approximately $2.1 million of the total. These funds are received directly from the feder; government and are used to provide rental assistance to over 400 families. In addition, th City received over $313,000 in federal funding for its Community Development Block Grar Program. This program provides funding for various community support services and capit; projects. Pass-through agencies, which administer grant programs for the federal government provided over $243,000 of the total federal funding to the City for various program. including: Senior Nutrition Program (Special Programs for the Aging) $172,000 To provide an average of 140 meals pe day at the City's Senior Center and tc supply meals to homebound senio citizens. Partnerships-for Change Grant 70,000 For administrative expendituresinvolved with the Library's continuing outreach program at the Centro de Informacion National Park Service Grant 1,200 For an historic preservation survey. FISCAL IMPACT: The audit report indicates that the City complied in all material respects with the laws and regulations governing these programs allowing for continuing federal financial assistance. Some immaterial instances of noncompliance were noted, however, and are disclosed in the * e 1 AGENDA BILL NO. ! a; 3 5 ! Schedule of Findings and Questioned Costs on pages 9-12 of the audit report. AN of thes findings have been cleared by the State Controller's Office and/or the US. Department c Housing and Urban Development with no financial impact to the City. EXHIBITS: The following audit reports are on file with the City Clerk and the Finance Department: 1. Comprehensive Annual Financial Report for the fiscal year ended June 30, 1992. 2. Schedule of Federal Financial Assistance and Independent Auditors' Reports for fisca year ended June 30, 1992. 4 a e ." .^ --...-<C'I"C*lr-*; \ . G'Peat Marwick Certified Public Accountants \ CITY OF CARLSBAD, CALIFORNIA Schedule of Federal Financial Assistance and Independent Auditors' Reports Required Under the Single Audit Act of 1984 June 30, 1992 0 a - CITY OF CARLSBAD, CALIFORNIA Schedule of Federal Financial Assistance e and Independent Auditors' Reports Required Under the Single Audit Act of 1984 Year ended June 30, 1992 Table of Contents e Independent Auditors' Report on Supplementary Schedule of Federal Financial Assistance e Schedule of Federal Financial Assistance Notes to Schedule of Federal Financial Assistance Independent Auditors' Report on Compliance at the General Purpose Financial Statement Level Independent Auditors' Report on Compliance with General Requirements Independent Auditors' Report on Compliance with Specific Requirements Applicable to Major and Nonmajor Federal Financial Assistance Programs 0 Special Tests and Provisions Schedule of Findings and Questioned Costs Status of Prior Year Findings Independent Auditors ' Report on Internal Controls e at the General Purpose Financial Statement Level Independent Auditors' Report on the Internal Control Structure at the Federal Financial Assistance Program Level @ 9 e 0 b Q' e e KPMG Peat Marwick Certified Public Accountants e 750 8 Street San Diego. CA 92101 Independent Auditors' Report on SuDDlementarp Schedule of Federal Financial Assistance e The Honorable Members of City Council City of Carlsbad, California: 0 We have audited the general purpose financial statements of the Citl Carlsbad, California (the City), as of and for the year ended June 30, I and have issued our report thereon dated October 9, 1992. These ger purpose financial statements are the responsibility of the management of City. Our responsibility is to express an opinion on these general pui financial statements based on our audit. We conducted our audit in accordance with generally accepted audi standards and Government Auditinn Standards, issued by the Comptroller Ger a of the United States. Those standards require that we plan and perfom audit to obtain reasonable assurance about whether the financial state] are free of material misstatement. An audit includes examining, on a basis, evidence supporting the amounts and disclosures in the general pu financial statements. An audit also includes assessing the accou: principles used and significant estimates made by management, as we1 evaluating the overall financial statement presentation. We believe thal audit provides a reasonable basis for our opinion. Our audit was made for the purpose of forming an opinion on the gei purpose financial statements of the City of Carlsbad, California, taken whole. The accompanying Schedule of Federal Financial Assistance is pres e for purposes of additional analysis and is not a required part of the ge purpose financial statements. The information in that Schedule has subjected to the auditing procedures applied in the audit of the ge purpose financial statements and, in our opinion, is fairly stated ir material respects in relation to the general purpose financial state taken as a whole. e e 0 K4nlG Pd dd October 9, 1992 e - - --- - - ~- 0 1 Member Firm of Klynveid Pear Llalulck Goerdeler 'L 0 0 m CITY OF CARLSBAD, CALIFORNIA Schedule of Federal Financial Assistance For the year ended June 30, 1992 e Pass- Pass- Federal/Pass-Through Federal Through Through Tot GrantorlProaram Title CFDA # Agency Grantor's # Exuendj 0 MAJOR PROGRAMS: Lower Income Housing Assistance Program (Section 8-Existing Program) 14.156 N /A N /A $ 1,862 a Housing and State Agency Community Development Block Grant/Entitlement Grants 14.218 N /A N/A 313 NONMAJOR PROGRAMS: 0 Housing Voucher Program 14.177 N/A N/A 25 2 Special Programs for the Aging, Title 111, Parts A & B 13.633 A 307183 7 0 Special Programs for the Aging, Title 111, Part C, Nutrition Services 13,635 A 30718E 164 Department of the Interior (Historic Preservation National Park Service, e Survey) 15.904 B 06-91-6002 1 Library Partnership-for-Change (Latino Outreach) 84.034 C 40-1954 and 40-2251 2 e $ 2.671# Pass-Through Agency: A. B. The California Department of Parks and Recreation. C. The California State Library. The San Diego County Department of the Area Agency on Aging. a See accompanying notes to Schedule of Federal Financial Assistance. 2 e e' a m CITY OF CARLSBAD, CALIFORNIA Notes to Schedule of Federal Financial Assistance For the year ended June 30, 1992 e (1) General a The accompanying Schedule of Federal Financial Assistance presents expenditures of all federal financial assistance programs of the of Carlsbad (the City). The City's reporting entity is define Note 1 to the City's general purpose financial statements. expenditures of federal financial assistance received directly federal agencies as well as expenditures of federal fina assistance passed through other government agencies are included i. Schedule. a (2) Basis of Accoun t ing The accompanying Schedule of Federal Financial Assistance is pres using the modified accrual basis of accounting, which is describc Note 1 to the City's general purpose financial statements. 0 tat emen t E; (3) Relationshio to General Purpose Financial S Federal financial assistance program revenues and expenditures reported in the City's general purpose financial statements as foll Fund Fur Bal ante Bal a June 30, June a lee]. Revenues Fxpend itures Jra nsfers a a Special Revenue Funds: Community Development Federal Grants (Partnershi ps-for- Change and Historic Block Grant $ 553,412 21,850 - - 575 Preservation) 20,853 89,427 70,508 (1,884) 37 Section 8 Housing Authority 118,155 2,134,328 2,114,753 - 137 Capital Projects Funds: Community Development e Senior Nutrition - 172,518 172,518 - - Block Grant - 313,479 313.479 - Total $ 692.42Q 2,731,602 2.671.258 (1.884) /50 a 0 3 e t e 0 m KPMG Peat Marwick Certified Public Accountants 750 B Street San Diego. CA 92101 * Independent Auditors' Report on Compliance at the General PurDose Financial Statement Level e The Honorable Members of City Council * City of Carlsbad, California: We have audited the general purpose financial statements of the Cit Carlsbad, California (the City), as of and for the year ended June 30, and have issued our report thereon dated October 9, 1992. We conducted our audit in accordance with generally accepted aud standards and Government Auditing Standards, issued by the Comptroller Ge of the United States. Those standards require that we plan and perfon audit to obtain reasonable assurance about whether the general pu financial statements are free of material misstatement. Compliance with laws, regulations, contracts, and grants applicable tc City is the responsibility of the City's management. As part of obta reasonable assurance about whether the general purpose financial state are free of material misstatement, we performed tests of the City's compl with certain provisions of laws, regulations, contracts and grants. How e our objective was not to provide an opinion on overall compliance with provisions. Accordingly, we do not express such an opinion. The results of our tests indicate that, with respect to the items tested City complied, in all material respects, with the provisions referred the preceding paragraph. With respect to items not tested, nothing ca our attention that caused us to believe that the City had not complied, i material respects, with those provisions. This report is intended for the information of members of City Cou management of the City and the Controller of the State of Califo However, upon acceptance by the City, this report is a matter of public r 0 0 a and its distribution is not limited. KPM iQ4 rJjd October 9, 1992 ~___ ~ - - e 4 Member F rm of - . __ ~~ Klynveld Pear Mawck Goerdeler a m Peat Marwick Certhed Public Accountants 750 B Street San Diego, CA 92101 Independent Auditors' Report on Compliance with General Requirements The Honorable Members of City Council City of Carlsbad, California: We have audited the general purpose financial statements of the Cit Carlsbad, California (the City), as of and for the year ended June 30, and have issued our report thereon dated October 9, 1992, We have also applied procedures to test the City's compliance with following requirements applicable to its federal financial assis programs, which are identified in the accompanying Schedule of Fe Financial Assistance, for the year ended June 30, 1992: Political activity 0 Civil rights 0 Cash management 0 Davis Bacon Act Federal financial reports Allowable costs/cost principles * Drug-Free Workplace Act Administrative requirements Relocation assistance and real property acquisition Our procedures were limited to the applicable procedures described in Off ice of Management and Budget * s Compliance SUDU lement for S inale Audit State and Local Governments. Our procedures were substantially less in , than an audit, the objective of which is the expression of an opinion 01 City's compliance with the requirements listed in the preceding parag Accordingly, we do not express such an opinion. With respect to the items tested, the results of those procedures disclose material instances of noncompliance with the requirements listed in the sz paragraph of this report. With respect to items not tested, nothing can our attention that caused us to believe that the City had not complied, ir material respects, with those requirements. However, the results of procedures disclosed immaterial instances of noncompliance with 1 requirements, which are described in the accompanying Schedule of Finding: Questioned Costs. This report is intended for the information of members of City Cow management of the City and the Controller of the State of Calif01 However, upon acceptance by the City, this report is a matter of public re and its distribution is not limited. Kfflc PeavVld October 9, 1992 5 - a a KPMG- Peat Marwick Certified Public Accountants 750 B Street San Diego, CA 92101 Independent Auditors' Report on Compliance with Specific Requirements Applicable to Major and Nonmaior Federal Financial Assistance Programs The Honorable Members of City Council City of Carlsbad, California: e We have audited the general purpose financial statements of the Citj Carlsbad, California (the City), as of and for the year ended June 30, 1 and have issued our report thereon dated October 9, 1992. We have also audited the City's compliance with the requirements gover types of services allowed or unallowed; eligibility; reporting; special t and provisions as identified in the accompanying Attachment; monitoring sub-recipients; and claims for advances and reimbursements that are applic to each of its major federal financial assistance programs, which identified in the accompanying Schedule of Federal Financial Assistance, the year ended June 30, 1992. The management of the City is responsible express an opinion on compliance with those requirements based on our audit We conducted our audit in accordance with generally accepted audi standards and Government Auditing Standards, issued by the Comptroller Gen of the United States, and the Office of Management and Budget (OMB) Circ A-128, Audits of State and Local Governments. Those standards and Circular A-128 require that we plan and perform the audit to obtain reason assurance about whether material noncompliance with the requirements refe to above occurred. An audit includes examining, on a test basis, evid about the City's compliance with those requirements. We believe that audit provides a reasonable basis for our opinion. The results of our audit procedures disclosed immaterial instances noncompliance with the requirements referred to in the second paragraph at: which are described in the accompanying Schedule of Findings and Questi Costs. We considered these instances of noncompliance in forming our opi on compliance, which is expressed in the following paragraph. In our opinion, the City of Carlsbad, California, complied, in all mate respects, with the requirements governing types of services allowec unallowed; eligibility; reporting; special tests and provisions as identj in the accompanying Attachment; monitoring of sub-recipients; and claims advances and reimbursements that are applicable to each of its major fec financial assistance programs for the year ended June 30, 1992. 0 the City's compliance with those requirements. Our responsibility is a 0 e 0 - __ ~ 6 a Member Firm of - ~ - _-- - Klynveld Peat Mawick Goerdeler 0 e a In connection with our audit of the 1992 general purpose financial statt of the City and with our study and evaluation of the City's internal cc by OMB Circular A-128, we selected certain transactions applicable to cc nonmajor federal financial assistance programs for the year ended Jur sys terns used to administer federal financial assistance programs, as ret a 1992. As required by OMB Circular A-128, we have performed auditing procedur test compliance with the requirements governing types of services allow unallowed and eligibility that are applicable to those transactions. procedures were substantially less in scope than an audit, the objecti which is the expression of an opinion on the City's compliance with requirements. Accordingly, we do not express such an opinion. With respect to the items tested, the results of those procedures disclos material instances of noncompliance with the requirements listed ir preceding paragraph. With respect to items not tested, nothing came t attention that caused us to believe that the City had not complied, ii material respects, with those requirements. 0 .I This report is intended for the information of members of City COU management of the City and the Controller of the State of Califo However, upon acceptance by the City, this report is a matter of public r and its distribution is not limited. a (<PlllG. PdMd October 9, 1992 0 e 0 7 6 Attac a e e CITY OF CARLSBAD, CALIFORNIA Special Tests and Provisions Year ended June 30, 1992 e Program Compliance Reauirement 0 Lower Income The Public Housing Agency (PHA) is required to review Hous ing contract rent (except for housing vouchers) and ut. Ass is tance allowances for each unit to ensure that they do not e: Program certain rent limitations. (CFDA fl14.156) Except for housing vouchers, the PHA is required to ann1 request from the owner. Special adjustments may als, granted to the extent determined necessary by the PHA and Department of Housing and Urban Development (HUD). (s adjust contract rents and tenant utility allowances @ The PHA is required to conduct an initial (and annt housing assistance payment contract to ensure that the 1 meet Housing Quality Standards (applies to existing hot and moderate rehabilitation programs only). e thereafter) inspection of units prior to executing a Community The grantee is required to enter into written agreements Development its subrecipients that meet certain criteria be Block Grant/ disbursing funds to the subrecipients. Entitlement Grants (CFDA Community Development Block Grant (CDBG) funds (and 1 jh4.218 ) funds to be repaid with CDBG funds) cannot be obligate( expended before receipt of HUD's approval of a Request Release of Funds (RROF) and environmental certificat except for exempt activities under 24 CFR 58.34. CDBG projects must have an environmental review made un 0 they meet criteria specified in the Code of Fed1 a Regulations that would exempt or exclude them from requirements. The grantee must accurately account for any program in generated from the use of CDBG Funds and must treat income as additional CDBG Funds subject to all program rul * a 0 8 m 0 0 CITY OF CARLSBAD, CALIFORNIA Schedule of Findings and Questioned Costs For the year ended June 30, 1992 e' PROGRAM: Drug-Free Workulace Act Compliance Reauirement: The City must publish a statement notifying employees that the unl manufacture, distribution, dispensing, possession or use of a contr substance is prohibited in the City's workplace. Finding : The City has not published a policy statement notifying fire and p employees that the unlawful manufacture, distribution, dispensing, posse or use of a controlled substance is prohibited in the City's workplace. Recommendation: The City should finalize its draft policy statement with regard to Drug-Free Workplace Act for fire and police employees. Once the p statement is finalized, it should be published in order to ensure thal fire and police employees are notified that compliance is required. Citv's Response: Council adopted a drug policy for Carlsbad City Employees' Associatic January 1992. However, the City has not yet concluded its meet and c obligation, as defined by the Meyers-Millias-Brown Act, with the Car Police Officers' Association and the Carlsbad Firefighters' Association conduct training with all employees' managers and supervisors in compl with the Drug-Free Workplace Act. e 0 a e (L the conclusion of these discussions, the City will issue a policy and PROGRAM: Lower Income Housina Assistance Program 1. ComDliance Reauirement : * The City is required to adjust contract rents and tenant ut allowances annually on request from the owner. Finding : For case file 114346, the City increased the amount of rent paid t landlord; however, this increase was not supported by a request fro landlord to raise the rent. We did note subsequent correspondence be the City and the landlord regarding the increase in rent. a 0 9 * a 3 e CITY OF CARLSBAD, CALIFORNIA Schedule of Findings and Questioned Costs, Continued * Recommendation: We recommend that a checklist be utilized for case files to ensure all required documentation is contained and any pending items are resc Citp's Response: The Housing Authority has developed a "File Contents Checklist" utilized by caseworkers when processing initial, annual and in recertifications, The implementation of this checklist will ensure e all required documentation is received prior to issuing the Hc Assistance Payment. The supporting documentation for case file $14346 has been received. e e 2. Compliance Reauirement: See requirement on previous page. Finding : 0 For case file 113545, the City entered an incorrect rent amount OI~ The landlord requested a rent increase to $665 i tenant summary form. overpayment occurred for six months. Recommendation: The procedures in place to review tenant summary forms should incli re-verification of rent amounts by a second person to ensure p amounts are entered. Citv's Response: The Housing Program Manager is reviewing all case files processed payment. This review includes verifying that the amount of rent inci granted does not exceed the amount requested. Additionally, staff received remedial training in this area. The $60.00 overpaid for case file #3545 has been recouped. rent amount of $675 was entered on the summary form. This $10 mol e a e 3. Compliance Reauirement: Financial reports must be submitted on a periodic basis within a required timeframe. 0 10 m- (b e CITY OF CARLSBAD, CALIFORNIA Schedule of Findings and Questioned Costs, Continued 0 Find inq : We noted that the City submitted its Requisition for Partial Paymei Annual Contributions for the quarter ended September 30, 199 November 27, 1991, which was after the deadline of November 15, 1991. City indicated that a verbal extension was granted by HUD; however, could not provide written approval for the extension. Recommendation: a e Any communication between the City and regulatory agencies relatii compliance with rules and regulations should be in writing and retain the City. Citv's ResDonse: Any requests for extensions or other matters relating to compliance rules and regulations will be communicated to the Department of Ho and Urban Development in writing and copies will be available ir pertinent housing f ilea. e e PROGRAM: Community Development Block Grant (CDBG) As part of our testwork on the City's CDBG program, we examined a sample expenditures totaling approximately $176,000. Total federal expenditurc the CDBG program for fiscal year 1992 were $313,479. 0 1. co muliance Requirement: CDBG funds may be used for activities including planning activitiei administrative costs. Find inq : During our review of expenditures, we noted that amounts being ch relating to administering the CDBG program are based on budgeted esti actual time spent when charging administration time to CDBG. The a of the budgeted costs identified in our review was $738. Recommendation: The City should discontinue using estimates to determine administr charges to the CDBG program and should develop a method for charging costs based on actual hours worked. e of labor costs and not actual expenditures. The City should be e 0 e 11 a- e 0 CITY OF CARLSBAD, CALIFORNIA Schedule of Findings and Questioned Costs 3 Continued 0 City's Resuonse: The City of Carlsbad will no longer rely on managerial estimate: determine the actual charges for CDBG program administration. A SJ has been developed and implemented to record and monitor staff time z on CDBG administrative activities on a daily basis. Each employee WOI on the CDBG program is recording hours on a detailed timesheet. figures are evaluated on a quarterly basis and a year-end adjustment be made to reflect the actual administrative expenses incurred instee the original estimates for costs. A similar finding was made by the U.S. Department of Housing and I Development and the actions described above resulted in the finding I cleared. e e e 2. Compliance Reauiremcnt: Financial reports must be submitted on a periodic basis within required timeframe. Finding : The City's Federal Cash Transactions Report for the quarter t September 30, 1991 for its Community Block Development Grant was subm: on November 14, 1991 which is not within the required fifteen-day dead: Recommendation: The City should emphasize the procedures currently used to monitor timely submission of quarterly reports. Citv's Response: Instructions included in the work folder state that the report is dl the Department of Housing and Urban Development no later than fifteenth day of the month following the end of the quarter. We are currently mailing the report no later than the tenth day. a e 0 a e 12 e e 0 CITY OF CARLSBAD, CALIFORNIA Status of Prior Year Findings Ib For the year ended June 30, 1992 PROGRAM: Drug-Free Workulace Act Compliance Requirement: The City must publish a statement notifying empl that the unlawful manufacture, distribution, dispensing, possession or u a controlled substance is prohibited in the City's workplace. Finding : a e The City has published a policy statement that does not include fin police employees. See Schedule of Findings and Questioned Costs. a e 0 0 0 a e 13 0 -_ a- - KPM- Peat Marwick Certified Public Accountants e 750 B Street San Diego, CA 92101 Independent Auditors' Report on Internal Controls at the General Pumose Financial Statement Level The Honorable Members of City Council City of Carlsbad, California: We have audited the general purpose financial statements of the Ci Carlsbad, California (the City), as of and for the year ended June 30, and have issued our report thereon dated October 9, 1992. We conducted our audit in accordance with generally accepted aud standards and Government Auditing Standards, issued by the Comptroller Ge of the United States. Those standards require that we plan and perfon audit to obtain reasonable assurance about whether the general pu financial statements are free of material misstatement. In planning and performing our audit of the general purpose final statements of the City for the year ended June 30, 1992, we considerec internal control structure in order to determine our auditing procedures the purpose of expressing our opinion on the general purpose final - I statements and not to provide assurance on the internal control structure. The management of the City is responsible for establishing and maintainii internal control structure. In fulfilling this responsibility, estimates judgments by management are required to assess the expected benefits related costs of internal control structure policies and procedures. reasonable, but not absolute, assurance that assets are safeguarded agz loss from unauthorized use or disposition, and that transactions are exec in accordance with management's authorization and recorded properly to PC the preparation of general purpose financial statements in accordance generally accepted accounting principles. Because of inherent limitation any internal control structure, errors or irregularities may neverthe occur and not be detected. Also, projection of any evaluation of structure to future periods is subject to the risk that procedures may be inadequate because of changes in conditions or that the effectiveness of design and operation of policies and procedures may deteriorate. 3 3 - 1 objectives of an internal control structure are to provide management - - - 0 e - 14 Member Firm of - --_ -~ - ~ Klynveld Peal Mansck Goeideler . e: * 0 (r e For the purpose of this report, we have classified the significant intl control structure policies and procedures in the following categories: 1. Accounting Controls Purchases/Disbursements Payroll Revenue/Receipts Investments e 2. Administrative controls established to ensure compliance with law8 regulations. Our consideration of the internal control structure included all of control categories listed above except that we did not evaluate the int control structure over the revenue/receipts cycle or investments becaui believed the audit could be performed more efficiently by expa structure and because these categories are not significant to the federal financial assistance programs. The purpose of our consideratic the internal control structure was to determine the nature, timing, and e of the auditing procedures necessary for expressing an opinion on the ge purpose financial statements. Our consideration of the internal control structure would not necess disclose all matters in the internal control structure that might be mat weaknesses under standards established by the American Institute of Cert Public Accountants. A material weakness is a reportable condition in the design or operation of one or more of the specific internal ca structure elements does not reduce to a relatively low level the risk errors or irregularities in amounts that would be material in relation t general purpose financial statements being audited may occur and nc detected within a timely period by employees in the normal cours performing their assigned functions. We noted no matters involving internal control structure and its operation that we consider to be mat weaknesses as defined above. 0 substantive testing rather than placing reliance on the internal co e 15 e - mr e e w 0 However, we noted certain matters involving the internal control structur its operation that we have reported to the management of the City separate letter dated October 9, 1992. This report is intended for the information of members of City Cou 0 management of the City, and the Controller of the State of Califc However, upon acceptance by the City, this report is a matter of public I and its distribution is not limited. kt46 pd dA (I October 9, 1992 a * 8 a e 16 e e- 0 1 KPMG- Peat Marwick Certified Public Accountants a 750 B Street San Diego, CA 92101 Independent Auditors' Report on the Internal Control Structure at the Federal Financial Assistance Program Level e The Honorable Members of City Council City of Carlsbad, California: e We have audited the general purpose financial statements of the Citj Carlsbad, California (the City), for the year ended June 30, 1992, and issued our report thereon dated October 9, 1992. We have also audited City's compliance with requirements applicable to major federal finan assistance programs and have issued our report thereon dated October 9, 199 We conducted our audits in accordance with generally accepted audi standards; Government Auditing Standards, issued by the Comptroller Genera the United States; and Office of Management and Budget (OMB) Circular A- Audits of State and Local Governments. Those standards and OMB Circular P require that we plan and perform the audit to obtain reasonable assur about whether the general purpose financial statements are free of mate noncompliance with which would be material to a major federal finar assistance program. In planning and performing our audits for the year ended June 30, 1992 considered the City's internal control structure in order to determine auditing procedures for the purpose of expressing our opinions on the Cj general purpose financial statements and on its compliance with requiren applicable to major programs and not to provide assurance on the intc control structure. This report addresses our consideration of intc control structure policies and procedures relevant to compliance requirements applicable to federal financial assistance programs. We addressed policies and procedures relevant to our audit of the general pui financial statements in a separate report dated October 9, 1992. The management of the City is responsible for establishing and maintainir internal control structure. In fulfilling this responsibility, estimates judgments by management are required to assess the expected benefits a 0 misstatement and about whether the City complied with laws and regulati e a e a 17 e Member Firm of ~- - - Klynveld Peat Marnick Goerdeler . * 0 - 0: w 0 related costs of internal control structure policies and procedures. objectives of an internal control structure are to provide management reasonable, but not absolute, assurance that assets are safeguarded ag accordance with management's authorization and recorded properly to permi generally accepted accounting principles, and that federal fina assistance programs are managed in compliance with applicable laws regulations. Because of inherent limitations in any internal cc structure, errors, irregularities, or instances of noncompliance nevertheless occur and not be detected. Also, projection of any evaluati * the structure to future periods is subject to the risk that procedure: become inadequate because of changes in conditions or that the effectiv of the design and operation of policies and procedures may deteriorate. For the purpose of this report, we have classified the significant int control structure policies and procedures used in administering fe financial assistance programs in the following categories: loss from unauthorized use or disposition, that transactions are execut 0 preparation of general purpose financial statements in accordance * A ccounting Controls 0 Pur chases /disbursements External financial reporting * Administrative Controls General reauirements: Political activity Cash management Davis Bacon Act Federal financial reports Allowable costs/cost principles Administrative requirements Civil rights Relocation assistance and real property acquisition e Drug-Free Workplace Act Saecif ic reauirements: a Types of services Eligibility Reporting Special tests and provisions, if any For all of the internal control structure categories listed above, we obtb determined whether they have been placed in operation, and we assessed con risk. e an understanding of the design of relevant policies and procedures e 18 0 * L e: 1 During the year ended June 30, 1992, the City expended 81 percent of its federal financial assistance under major federal financial assistance pro We performed tests of controls, as required by OMB Circular A-128, to ev the effectiveness of the design and operation of internal control str policies and procedures that we considered relevant to preventing or det material noncompliance with specific requirements, general require requirements governing claims for advances and reimbursements, and a claimed or used for matching that are applicable to the City's major ft financial assistance programs, which are identified in the accomp; Schedule of Federal Financial Assistance. Our procedures were less in * than would be necessary to render an opinion on these internal ct structure policies and procedures. Accordingly, we do not express su opinion. e Our consideration of the internal control structure would not neces; weaknesses under standards established by the American Institute of Cer Public Accountants. A material weakness is a reportable condition in the design or operation of one or more of the internal control strl elements does not reduce to a relatively low level the risk that noncomp with laws and regulations that would be material in relation to a fi financial assistance program may occur and not be detected within a e period by employees in the normal course of performing their as2 functions. We noted no matters involving the internal control structur its operations that we considered to be material weaknesses as defined abc We also noted other matters involving the internal control structure an operation that we have reported to the management of the City of Carl California in a separate letter dated October 9, 1992. This report is intended for the information of members of the City Cot management of the City, and the Controller of the State of Calif( However, upon acceptance by the City, this report is a matter of public 1 disclose all matters in the internal control structure that might be ma * e and its distribution is not limited. e Kt& Pd dd October 9, 1992 0 e a 19 e e \ KPMG Peat Marwick Certified Public Accountants 750 8 Street Telephone 61 9 233 8000 Telecopier 619 696 01 San Diego, CA 921 01 March 12, 1992 Mr. James F. Elliott Financial Management Director 1200 Carlsbad Village Drive Carlsbad, California 92008 Dear Jim: As requested, we are writing to provide you with an estimate of fees for the audit of the financial statements of the City of Carlsbad as of and for the year ending June 30, 1992. This letter will confirm our understanding of that engagement. We will conduct our audit in accordance with generally accepted auditing standards and Government Auditing Standards issued by the Comptroller General of the United States with the objective of issuing the reports listed below at the conclusion of our audit. It should be understood that the City's management has responsibility for representations contained in the financial statements and that we will require a written representation letter be furnished to us by members of the City's management near the completion of our audit. Our responsibility is to express an opinion on these financial statements based on our audit. In conducting our audit we will perform tests of the accounting records and such other procedures as we consider necessary in the circumstances to form our opinion about whether the financial statements are free of material misstatement and to report on whether management has complied with laws and regulations and has established and maintained an internal control structure. An audit in accordance with the above standards is not designed to provide absolute assurance that there are no misstatements in your financial statements or any noncompliance with laws and regulations resulting from errors or irregularities. The City's internal control structure should provide assurance, although not absolute assurance, against the possibility of such errors and irregularities. We understand that all records, documentation and information we request in connection with our audit will be made available to us. At the conclusion of our audit, we plan on issuing the following reports for the year ending June 30, 1992. City of Carlsbad For the City: A report on the general purpose financial statement of the City as a whole with supplementary information as incorporated in the Comprehensive Annual Financial Report; Redevelopment Agency; 0 A report on the component unit financial statements of the Carlsbad ~v~~.rt~t~c~r rlr41 ilf h'wivclrl I+ ii Phrw ck Gnerrldrr 0 0 '. KPMG Peat Marwlck Mr. James F. Elliott City of Carlsbad March 12, 1992 Page 2 0 A report on the component unit financial statements of the City of Carlsbad Public Improvement Corporation; A report on the component unit financial statements of the Building Authority of the City of Carlsbad; A report on the component unit financial statements of the Parking Authority of the City of Carlsbad; An agreed upon procedures letter relating to the Gann limit; A report on the internal control structure based solely on our consideration A report on conipliance with laws and regulations that may have a material A report on compliance with laws and regulations relating to the Carlsbad 0 4 4 4 . of the structure made as a part of the audit of the general purpose financial statements; and effect on the general purpose financial statements. 4 Redevelopment Agency. For the City's federal assistance programs: 4 A report on the supplementary schedule of the City's federal financial A report on compliance with laws and regulations identifying all findings of A report on the internal control structure used in administering federal A report on fraud, abuse, or illegal acts (or indications of such acts), if assistance programs; 0 noncompliance and questioned costs; 0 financial assistance programs; and 4 necessary. It should be understood that our audit may not reveal all errors, irregularities or illegal acts which may have occurred during the year. However, please be advised that it is our responsibility to ensure that the City Council is informed of any significant illegal acts that we become aware of during our audit. If the illegal act involves funds from other governmental entities, it is the City Council's responsibility to inform the other governmental entities of these acts. If the City of Council is involved in t he illegal act or does not report to the other governmental entities on a timely basis, we will be obligated to report the illegal acts to these other governmental entities. . * e I KhPeat Marwick Mr. James F. Elliott March 12,1992 Page 3 Our fees, which will be billed to you as the work progresses, are based on hourly rates plus reimbursement of out-of-pocket expenses. Our fee for the engagement are estimated to be as follows: Ciry of Carlsbad Comprehensive Annual Financial Report Schedule of Federal Financial Assistance and the Auditors' Reports Required Under the Single Audit Act of 1984 3,600 Carlsbad Redevelopment Agency 2,900 City of Carlsbad Public Improvement Corporation 2,900 775 Parking Authority of the City of Carlsbad 775 Gann Limit 1 ,m $ 31,900 Building Authority of the City of Carlsbad These fees are inclusive of out-of-pocket costs including report charges and mileage estimated to be $7,200 for the above reports. If the terms of our engagement as outlined in his letter are acceptable to you, please sign and return the enclosed copy of this letter. If you have any questions regarding this letter or any other matter, please do not hesitate to call me. Very truly yours, KPMG Peat Marwick 4M- John H. Davis Partner JHD:dcm Enclosure cc: Ms. Lisa Hildabrand Accepted by: ?%$A& Date CARLSBAD REDEVELOPMENT AGENCY Notes to Combined Financial Statements June 30, 1992 I) (1) Organization and Summary of Significant Accounting Policies The Carlsbad Redevelopment Agency (the Agency) was established in 1976 with the adoption of Ordinance No. 1191 by the Carlsbad Council pursuant to the California Community Redevelopment Law, codified as Part 1, Division 24, of the State of California Health Safety Code. The Agency has the broad authority to acqu rehabilitate, develop, administer and sell or lease property. Agency is not subject to federal or state income taxes. e a The principal objectives of the Agency are to eliminate blis influences within the "Village Area" of the City of Carlsbad, stimi and attract private investment, generate added employment thi increased specialty goods and services and expand the City's sales revenue. a The Agency is an integral part of the reporting entity of the Cit Carlsbad (the City). The funds and account group of the Agency been included within the scope of the general purpose finar statements of the City because the City Council exercises over: responsibility over the operations of the Agency. Only the fundr account group of the Agency are included herein; therefore, financial statements do not purport to represent the financial pos or results of operations of the City of Carlsbad, California. J, The accounting policies of the Agency conform to generally acc accounting principles as applicable to governmental units. following is a summary of the more significant policies: e (a) Basis of Presentation: The accounts of the Agency are organized on the basis of funds a account group, each of which is considered to be a seE accounting entity. The operations of each fund and account are accounted for by providing a separate set of self-balz accounts that comprise its assets, liabilities, fund bal revenues, and expenditures. The various funds and account are summarized by type in the financial statements. The fund and account group used by the Agency are as follows: GOVERNMENTAL FUND TYPES: Governmental funds are used to account for the Agency's expe financial resources and related liabilities. The measurement is upon determination of changes in financial position. following are the Agency's governmental fund types: 0 a a (Cont a e 2 CARLSBAD REDEVELOPMENT AGENCY Notes to Combined Financial Statements, Continued I) (1) Oraanization and Summary of Significant Accounting Policies. Continued (a) Basis of Presentation, Continued: Svecial Revenue Funds Special revenue funds are used to account for revenues der from specific sources (other than major capital projects) are restricted by law or administrative regulation expenditures for specified purposes. Debt Service Funds Debt service funds are used to account for the accumulatio resources for , and payment of general long-term debt princj interest and related costs. Cavital Projects Funds Capital projects funds are used to accourrt for finar resources to be used for the acquisition or construction of 1 capital facilities. 0 ab GENERAL LONG-TERM DEBT ACCOUNT GROUP: This account group is used to establish accounting control accountability for the Agency's general long-term debt. account group is used to account for all long-term obligatio1 the Agency. e (b) Measurement Focus a nd Basis for Accoun ting: Governmental fund types are accounted for on a "spending" measur focus. Accordingly, only current assets and current liabil are included on their balance sheets, and the reported fund ba provides an indication of available, spendable resou Operating statements for governmental fund types report incr (revenues) and decreases (expenditures) in available sper resources. 0 a Q) (Cont: e 0 3 CARLSBAD REDEVELOPMENT AGENCY Notes to Combined Financial Statements, Continued * (1) Organization and Summarv of Significant Accountinz Policies. Co n t inued (b) Measurement Focus a ad Basis €or Accoun ting. C on t hued : e The modified accrual basis of accounting is utilized by governmental fund types. Revenues are recognized when suscept to accrual, i.e., both measurable and available. Available m collectible within the current period or soon enough thereaf te: be used to pay liabilities of the current period. * Revenues that are accrued include the tax increment on real proF taxes and interest income. Real property taxes are levied on October 15 against owners of re at March 1. The taxes are due in two installments, on Novemt and February 1, and become delinquent after December 10 April 10, respectively. Tax liens attach annually as of 12:Ol on the first day of March in the fiscal years for which the t are levied. Under the provisions of NCGA Interpretatic taxes have been levied, provided it is collected within 60 day the end of the fiscal year. e property tax revenue is recognized in the fiscal year for whict Governmental fund expenditures are recognized when the liabilit incurred, except for principal and interest on long-term debt F is recognized when due. (c) Encumbrances: Encumbrance accounting, under which purchase orders, contracts other commitments for the expenditure of monies are recorde order to reserve that portion of the applicable appropriatior employed as an extension of formal budgetary control in governmental funds. Encumbrances outstanding at year-end dc constitute expenditures or liabilities, but are reportec reservations of fund balance for subsequent-year expenditures. 0 (d) Cash and Investments: a The Agency participates in the pooled cash and investment fund o City of Carlsbad. Pooled investments are stated at cos amortized cost. The Agency's equity in the pooled cash is inc in the financial statements as cash and investments. Int earned as a result of the pooling is allocated to the Agency on its average monthly balances. * (Conti 0 4 CARLSBAD REDEVELOPMENT AGENCY 0 Notes to Combined Financial Statements, Continued (1) Oraanization and Swarv of Sianificant Accounting Policies, Continued (e) ComDensated Absences: Vacation pay is payable to employees at the time used or termination of employment. The cost of accumulated vaca expected to be paid in the next 12 months is recorded as a liability; currently no amounts are expected to be paid aftei e months . (f) Total Columns: Total columns on the accompanying combined financial statements captioned "Totals (Memorandum Only)" to indicate that they presented only to facilitate financial analysis. Data in t or changes in fund balance in conformity with generally acce accounting principles. Such data is not comparable t consolidation. Interfund eliminations have not been made in aggregation of this data. calms do not present financial position, results of operatj e (2) Budgetarv Data The budget for the Agency is established by the City of Carlsbad. City Manager is authorized to make transfers of appropriated amc within a fund and function for up to $15,000. Revisions that altei total appropriations of any fund or function must be approved by City Council. A mid-year budget review is conducted each year. major changes to the adopted budget are approved by the City Counc that time. e Budgets are adopted on the modified accrual basis, except encumbrances are treated as budgeted expenditures in the year purc are committed. Expenditures may not exceed budgeted appropriatioi the departmental level. Unencumbered appropriations lapse year-end. Annual budgets are adopted for the special revenue and service funds. e There were no encumbrances outstanding for the debt service fund i 0 June 30, 1992. I, (Cont! 0 e 5 CARLSBAD REDEVELOPMENT AGENCY Notes to Combined Financial Statements, Continued e (2) Budgetary Data. Co n t inued e The following schedule is a reconciliation of the budgetary and GAAP balances : Debt Sen Fund balance - budgetary basis $ 2,019,072 2,287,5 Debt service on advances from SDecial Revenue a Encumbrances outstanding at year-end 6 , 196 - City of Carlsbad - not budgeted - m Fund balance - GMP basis $ 2.025.268 l-757.( (3) Cash and Investments The Agency participates in the pooled cash fund of the City. addition, some deposits are held separately by several of the Age1 funds . e Authority for Deposits and Investments: The Agency's investment policy and state statutes authorize the Agenc invest in demand and time deposits, obligations of the U.S. Treaz its agencies and instrumentalities, commercial paper rated A-: Standard and Poor's Corporation or P-1 by Moody's Commercial 1 record, banker's acceptances with a maximum maturity of 270 ( with national and state licensed or chartered banks or federal or : savings and loan associations, money market and mutual funds I portfolios consist of one or more of the foregoing investments, an repurchase and reverse repurchase agreements 9 certificates of de] State Treasurer's investment pool. State statutes require that all deposits be insured or collateral Depositories holding public funds on deposit are required to mai collateral in the form of a pool of securities with the agent o depository having a market value of at least 10 to 50 percent in e of the total amount of all public funds on deposit. e e (Conti e @ 6 CARLSBAD REDEVELOPMENT AGENCY Notes to Combined Financial Statements, Continued (3) Cash and Investments. Continued 0 Deuos i ts : The following summary presents the amount of the Agency's deposits 7 are fully insured or collateralized with securities held by the A1 are collateralized with securities held by the pledging f inai institution's trust department or agent in the Agency's name (Cat1 Two), and those deposits which are not collateralized or collateralized with securities held by the pledging fina institution or its trust department or agent but not in the Age name (Category Three) at June 30, 1992. e Total or its agent in the Agency's name (Category One), those deposits \ Category Category Category Bank Carr One Two Three Balance Am0 Cash on deposit with trustee $ -=- 2-825.792 1.151.608 3,977.403 3,977 e Investments : At June 30, 1992, the Agency had $3,267,590 invested in the pooled fund of the City. Since securities are not used to evidence Agency's investment in this fund, these amounts cannot be class according to the level of risk assumed by the Agency. (4) Pension Plan The Agency's employees are included in the City's pension plan whi a administered by the California Public Employees Retirement S (PERS). PERS is an agent multiple-employer public employee retir system that acts as a common investment and administrative agen participating public entities within the state of California. e e (Contj a 0 7 CARLSBAD REDEVELOPMENT AGENCY Notes to Combined Financial Statements, Continued 0 (4) Pension Plan, Continued 0 All full-time employees are eligible to participate as members of PERS, Benefits vest after an employee has been a member of the : for five years. Employees are eligible to retire after age 50 wit years of credited service. Annual retirement benefits are determ based on age at retirement, the length of membership service and amount of earnings based on the highest twelve consecutive mo e average. The PERS also provides death and disability benefits. 'I benefit provisions and all other requirements are established by s statute. Employees are required to make contributions equaling 7 percent of g pay. This is paid by the City for the benefit of the employees in a of salary. The City is also required to contribute the remai amounts necessary to fund the benefits for its members, using actuarial basis recommended by the PERS actuaries and actua consultants and adopted by the PERS Board of Administration. Additional disclosures required by Governmental Accounting Stanc entity. This information for the City's reporting entity is presc in the Comprehensive Annual Financial Report of the City of Carlsbac e Board Statement No, 5 are not available for the Agency as a sepp (5) Lona-term Debt m The following is a summary of changes in long-term debt for the ended June 30, 1992: Principal Princ Ba 1 an c e Bals July 1, Additional Principal June a 1991 Oblizat ionq Re tirementr; Lp Advances from the City of Car 1 sbad $ 6,989,854 500 , 731 29 , 800 7,460 270,000 11.475 0 Bonds payable 11,745,000 - $ 18.734.854 500.731 22Uuu (Contj 0 e 8 CARLSBAD REDEVELOPMENT AGENCY Notes to Combined Financial Statements, Continued 0 (5) Long-term Debt. Continued 0 Since activation of the Redevelopment Agency in July 1976, the City advanced the Agency monies for approved expenditures. Advances the City bear interest at 10% per year. There is no stated matu date. Bonds payable consist of $11,475,000 in 1988 Carlsbad Housing Redevelopment Commission Tax Allocation Bonds. Principal is du amounts ranging from $290,000 to $595,000 on April 1 of each through 2003, a principal payment of $2,890,000 on April 1, 2007, i principal payment of $3,950,000 on April 1, 2011. The princ payments of $2,890,000 and $3,950,000 are subject to mandatory sir fund redemption which amounts are reflected in the debt sei requirements below. Interest is payable each year on October 1 April 1 at rates varying from 5.5% to 7.55% per annum. e e Debt service requirements to maturity for the bonds, including si1 fund payments, are as follows: 1993 $ 1,137,938 1994 1,135,828 1995 1,142,222 1996 1 , 146,598 1997 1,148,522 1998-2002 5,786,452 a 2003-2007 5,860,824 2008-201 1 4.750.280 22,108,664 (10 -633.6 64) 0 Less amounts representing interest Bonds payable $ 11.475.000 e At June 30, 1992, the Agency was in compliance with all significant covenants. a (Cent 9 CARLSBAD REDEVELOPMENT AGENCY 0 Notes to Combined Financial Statements, Continued (6) Obligations Under Operating Leases e In June 1988, the Agency entered into an agreement to lease a parking from a private party. The lease requires monthly rental payment: $3,270 for twenty years. Rent expense was $39,240 for the year e June 30, 1992. In May 1990, the Agency entered into an agreement to lease a parking a on Carlsbad Village Drive from a private party. The lease requ monthly rental payments of $4,350 commencing July 1, 1991 for years. Total annual rent expense is $52,200. The following is a schedule by year of future minimum rental pap required under operating leases at June 30, 1992: Annual Year ending Jun e 30, Rental Pavments 1993 $ 91,440 1994 91,440 1996 41,954 1997 41,954 Thereafter 526.119 Total minimum lease payments $ 886.701 e 1995 93,794 a (7) Fund Balances Reserves for the loan receivable and low and moderate income housing established to show that certain assets are already committed to c purposes and are not available for discretionary expenditures. Reserve for debt service represents resources legally restricted to payment of general long-term debt principal and interest maturin future years. e Reserve for encumbrances represents commitments related to unperfc contracts for services and undelivered goods. Unreserved-designated for approved capital projects represents the balance expected to be used for the acquisition or constructio major capital facilities. 0 (Contii a a 10 CARLSBAD REDEVELOPMENT AGENCY Notes to Combined Financial Statements, Continued * (7) Fund Balances, Continued 0 Unreserved-undesignated balances represent the fund balance rema after reduction for reserved and designated fund balances. (8) Other Required Individual Fund Disclosures Expenditures exceeded appropriations in the following fund: 0 ExDenditure AoDropriz Debt service fund - interest and Special revenue fund - general fiscal charges $ 863,326 863,2 government 104,309 98,l 3 The excess of expenditures over appropriations in the debt service relates to fiscal charges and the excess of expenditures appropriations in the special revenue fund relates to vai 3 expenditures. 3 - -1 l e --- - __ - e KP=>Peat Marwick Certified Public Accountants 750 B Street San Diego, CA 92101 a Independent Auditors' Report On Compliance With Audit Guidelines e For California RedeveloDment Agencies The Board of Commissioners Carlsbad, California: e Carlsbad Redevelopment Agency We have audited the combined financial statements of the Carl$ Redevelopment Agency (a component unit of the City of Carlsbad, California of and for the year ended June 30, 1992, and have issued our report the dated October 9, 1992. These combined financial statements are responsibility of the Agency's management. Our responsibility is to exp: an opinion on these combined financial statements based on our audit. In connection with our audit, we performed the procedures contained in a publication entitled Guidelines for Co mDliance - Audits of Califo Redevelopment Agencies, as promulgated by the Controller of the Statc California in connection with a review of the Agency's compliance with 1 regulations and administrative requirements governing activities of Agency, as required by Section 33080.1(a) of the Health and Safety Code of State of California. The procedures we preformed would not necessa disclose all instances of noncompliance because they were based on selec tests of accounting records and related data. During the performance of the aforementioned procedures , nothing came to attention that would lead us to believe that the Carlsbad Redevelopment Ag of the City of Carlsbad did not comply with applicable laws, regulatiom administrative requirements governing its activities. This report is to be used solely for filings with appropriate reguli agencies and is not intended for any other purpose. This restriction is intended to limit the distribution of this report which, upon acceptanc the Agency, is a matter of public record. e e 0 a KP/rlG pe4.t dd October 9, 1992 a -- - ___--__ a Member Firm of . - - ~___ - Klynveld Pear Marwck Goerdeler