HomeMy WebLinkAbout; ; 1992 Federal Financial Assistance audit report; 1992-07-30CITY OF CARLSBAD, CALIFORNIA
Schedule of Federal Financial Assistance
and Independent Auditors' Reports
Required Under the Single Audit Act of 1984
June 30, 1992
CITY OF CARLSBAD, CALIFORNIA
Schedule of Federal Financial Assistance
and Independent Auditors' Reports
Required Under the Single Audit Act of 1984
Year ended June 30, 1992
Table of Contents
Page
Independent Auditors' Report on
Supplementary Schedule of Federal Financial Assistance 1
Schedule of Federal Financial Assistance 2
Notes to Schedule of Federal Financial Assistance 3
Independent Auditors' Report on
Compliance at the General Purpose Financial Statement Level 4
Independent Auditors' Report on Compliance with General Requirements 5
Independent Auditors' Report on Compliance with Specific Requirements
Applicable to Major and Nonmajor Federal Financial Assistance Programs 6
Special Tests and Provisions 8
Schedule of Findings and Questioned Costs 9
Status of Prior Year Findings 13
Independent Auditors' Report on Internal Controls
at the General Purpose Financial Statement Level 14
Independent Auditors' Report on the Internal Control Structure
at the Federal Financial Assistance Program Level 17
Peat Marwick
Certified Public Accountants
750 B Street
San Diego. CA 92101
Independent Auditors' Report
on Supplementary Schedule of Federal Financial Assistance
The Honorable Members of City Council
City of Carlsbad, California:
We have audited the general purpose financial statements of the City of
Carlsbad, California (the City), as of and for the year ended June 30, 1992,
and have issued our report thereon dated October 9, 1992. These general
purpose financial statements are the responsibility of the management of the
City. Our responsibility is to express an opinion on these general purpose
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards and Government Auditing Standards, issued by the Comptroller General
of the United States. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the general purpose
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
Our audit was made for the purpose of forming an opinion on the general
purpose financial statements of the City of Carlsbad, California, taken as a
whole. The accompanying Schedule of Federal Financial Assistance is presented
for purposes of additional analysis and is not a required part of the general
purpose financial statements. The information in that Schedule has been
subjected to the auditing procedures applied in the audit of the general
purpose financial statements and, in our opinion, is fairly stated in all
material respects in relation to the general purpose financial statements
taken as a whole.
fad
October 9, 1992
Member Firm of
Klynveld Peat Marwick Goerdeler
CITY OF CARLSBAD, CALIFORNIA
Schedule of Federal Financial Assistance
For the year ended June 30, 1992
Federal/Pass-Through
Grantor/Program Title
MAJOR PROGRAMS;
Lower Income Housing Assistance
Program (Section 8-Existing
Housing and State Agency
Program)
Community Development Block
Grant/Entitlement Grants
NONMAJOR PROGRAMS;
Housing Voucher Program
Special Programs for the Aging,
Title III, Parts A & B
Special Programs for the Aging,
Title III, Part C,
Nutrition Services
National Park Service,
Department of the Interior
(Historic Preservation
Survey)
Library Partnership-for-Change
(Latino Outreach)
Pass- Pass-
Federal Through Through
CFDA # Agency Grantor's #
14.156 N/A
14.218 N/A
14.177 N/A
13.633
13.635
15.904
84.034
N/A
N/A
N/A
30718E
30718E
06-91-6002
40-1954 and
40-2251
Pass-Through Agency;
A. The San Diego County Department of the Area Agency on Aging.
B. The California Department of Parks and Recreation.
C. The California State Library.
Total
Expenditures
1,862,282
313,479
252,471
7,973
164,545
1,223
69.285
$ 2.671.258
See accompanying notes to Schedule of Federal Financial Assistance.
2
CITY OF CARLSBAD, CALIFORNIA
Notes to Schedule of Federal Financial Assistance
For the year ended June 30, 1992
(1) General
The accompanying Schedule of Federal Financial Assistance presents the
expenditures of all federal financial assistance programs of the City
of Carlsbad (the City). The City's reporting entity is defined in
Note 1 to the City's general purpose financial statements. All
expenditures of federal financial assistance received directly from
federal agencies as well as expenditures of federal financial
assistance passed through other government agencies are included in the
Schedule.
(2) Basis of Accounting
The accompanying Schedule of Federal Financial Assistance is presented
using the modified accrual basis of accounting, which is described in
Note 1 to the City's general purpose financial statements.
(3) Relationship to General Purpose Financial Statements
Federal financial assistance program revenues and expenditures are
reported in the City's general purpose financial statements as follows:
Special Revenue Funds:Community Development
Block Grant
Federal Grants
(Partnershi ps-for-
Change and Historic
Preservation)Section 8 Housing Authority
Senior NutritionCapital Projects Funds:
Community Development
Block Grant
Fund
Balance
June 30,
1991
$ 553,412
20,853
118,155
Revenues Expenditures
21,850
89,427
2,134,328
172,518
313.479
Fund
Balance
June 30,
Transfers 1992
575,262
70,508
2,114,753
172,518
313.479
(1,884)37,888
137,730
Total $ 692.420 2.731.602 2.671.258 (1.884) 750.880
Peat Marwick
Certified Public Accountants
750 B Street
San Diego, CA 92101
Independent Auditors' Report
on Compliance at the General Purpose Financial Statement Level
The Honorable Members of City Council
City of Carlsbad, California:
We have audited the general purpose financial statements of the City of
Carlsbad, California (the City), as of and for the year ended June 30, 1992,
and have issued our report thereon dated October 9, 1992.
We conducted our audit in accordance with generally accepted auditing
standards and Government Auditing Standards, issued by the Comptroller General
of the United States. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the general purpose
financial statements are free of material misstatement.
Compliance with laws, regulations, contracts, and grants applicable to the
City is the responsibility of the City's management. As part of obtaining
reasonable assurance about whether the general purpose financial statements
are free of material misstatement, we performed tests of the City's compliance
with certain provisions of laws, regulations, contracts and grants. However,
our objective was not to provide an opinion on overall compliance with such
provisions. Accordingly, we do not express such an opinion.
The results of our tests indicate that, with respect to the items tested, the
City complied, in all material respects, with the provisions referred to in
the preceding paragraph. With respect to items not tested, nothing came to
our attention that caused us to believe that the City had not complied, in all
material respects, with those provisions.
This report is intended for the information of members of City Council,
management of the City and the Controller of the State of California.
However, upon acceptance by the City, this report is a matter of public record
and its distribution is not limited.
October 9, 1992
Member Firm of
Klynveld Peat Marwick Goerdeler
May 20, 1993
TO: CITY CLERK
VIA: ACTING FINANCE DIRECTOR
FROM: Accountant
REVISION TO FISCAL YEAR 1991-92 SINGLE AUDIT REPORT
(SCHEDULE OF FEDERAL FINANCIAL ASSISTANCE & INDEPENDENT AUDITORS' REPORTS)
The State Controller's Office required a revision to paragraph two of the Independent Auditors'
Report on Compliance with General Requirements found on page 5 of the Single Audit Report. The
word "major" has been eliminated.
KPMG Peat Marwick has corrected the report and supplied the replacement pages for distribution.
Attached are two copies of the compliance report only. If you would prefer a new bound Single
Audit Report, including the revised compliance report, please contact me in the Finance Department
at extension 2868.
BARBARA HONIG
Attachments
Peat Marwick
Certified 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 City of
Carlsbad, California (the City), as of and for the year ended June 30, 1992,
and have issued our report thereon dated October 9, 1992.
We have also applied procedures to test the City's compliance with the
following requirements applicable to its federal financial assistance
programs, which are identified in the accompanying Schedule of Federal
Financial Assistance, for the year ended June 30, 1992:
Political activity
Civil rights
Cash management
Davis Bacon Act
Relocation assistance and real property acquisition
Federal financial reports
Allowable costs/cost principles
Drug-Free Workplace Act
Administrative requirements
Our procedures were limited to the applicable procedures described in the
Office of Management and Budget's Compliance Supplement for Single Audits of
State and Local Governments. Our procedures were substantially less in scope
than an audit, the objective of which is the expression of an opinion on the
City's compliance with the requirements listed in the preceding paragraph.
Accordingly, we do not express such an opinion.
With respect to the items tested, the results of those procedures disclosed no
material instances of noncompliance with the requirements listed in the second
paragraph of this report. With respect to items not tested, nothing came to
our attention that caused us to believe that the City had not complied, in all
material respects, with those requirements. However, the results of our
procedures disclosed immaterial instances of noncompliance with those
requirements, which are described in the accompanying Schedule of Findings and
Questioned Costs.
This report is intended for the information of members of City Council,
management of the City and the Controller of the State of California.
However, upon acceptance by the City, this report is a matter of public record
and its distribution is not limited.
October 9, 1992
Member Firm of
Klynveld Peat Marwick Goerdeler
Peat Marwick
Certified 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 City of
Carlsbad, California (the City), as of and for the year ended June 30, 1992,
and have issued our report thereon dated October 9, 1992.
We have also applied procedures to test the City's compliance with the
following requirements applicable to its major federal financial assistance
programs, which are identified in the accompanying Schedule of Federal
Financial Assistance, for the year ended June 30, 1992:
Political activity
Civil rights
Cash management
Davis Bacon Act
Relocation assistance and real property acquisition
Federal financial reports
Allowable costs/cost principles
Drug-Free Workplace Act
Administrative requirements
Our procedures were limited to the applicable procedures described in the
Office of Management and Budget's Compliance Supplement for Single Audits of
State and Local Governments. Our procedures were substantially less in scope
than an audit, the objective of which is the expression of an opinion on the
City's compliance with the requirements listed in the preceding paragraph.
Accordingly, we do not express such an opinion.
With respect to the items tested, the results of those procedures disclosed no
material instances of noncompliance with the requirements listed in the second
paragraph of this report. With respect to items not tested, nothing came to
our attention that caused us to believe that the City had not complied, in all
material respects, with those requirements. However, the results of our
procedures disclosed immaterial instances of noncompliance with those
requirements, which are described in the accompanying Schedule of Findings and
Questioned Costs.
This report is intended for the information of members of City Council,
management of the City and the Controller of the State of California.
However, upon acceptance by the City, this report is a matter of public record
and its distribution is not limited.
October 9, 1992
Member Firm of
Klynveld Peat Marwick Goerdeler
Peat Marwick
Certified Public Accountants
750 B Street
San Diego, CA 92101
Independent Auditors' Report
on Compliance with Specific Requirements Applicable to
Maior and Nonmaior Federal Financial Assistance Programs
The Honorable Members of City Council
City of Carlsbad, California:
We have audited the general purpose financial statements of the City of
Carlsbad, California (the City), as of and for the year ended June 30, 1992,
and have issued our report thereon dated October 9, 1992.
We have also audited the City's compliance with the requirements governing
types of services allowed or unallowed; eligibility; reporting; special tests
and provisions as identified in the accompanying Attachment; monitoring of
sub-recipients; and claims for advances and reimbursements that are applicable
to each of its major federal financial assistance programs, which are
identified in the accompanying Schedule of Federal Financial Assistance, for
the year ended June 30, 1992. The management of the City is responsible for
the City's compliance with those requirements. Our responsibility is to
express an opinion on compliance with those requirements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards and Government Auditing Standards, issued by the Comptroller General
of the United States, and the Office of Management and Budget (OMB) Circular
A-128, Audits of State and Local Governments. Those standards and OMB
Circular A-128 require that we plan and perform the audit to obtain reasonable
assurance about whether material noncompliance with the requirements referred
to above occurred. An audit includes examining, on a test basis, evidence
about the City's compliance with those requirements. We believe that our
audit provides a reasonable basis for our opinion.
The results of our audit procedures disclosed immaterial instances of
noncompliance with the requirements referred to in the second paragraph above,
which are described in the accompanying Schedule of Findings and Questioned
Costs. We considered these instances of noncompliance in forming our opinion
on compliance, which is expressed in the following paragraph.
In our opinion, the City of Carlsbad, California, complied, in all material
respects, with the requirements governing types of services allowed or
unallowed; eligibility; reporting; special tests and provisions as identified
in the accompanying Attachment; monitoring of sub-recipients; and claims for
advances and reimbursements that are applicable to each of its major federal
financial assistance programs for the year ended June 30, 1992.
Member Firm of
Klynveld Peat Marwick Goerdeler
In connection with our audit of the 1992 general purpose financial statements
of the City and with our study and evaluation of the City's internal control
systems used to administer federal financial assistance programs, as required
by OMB Circular A-128, we selected certain transactions applicable to certain
nonmajor federal financial assistance programs for the year ended June 30,
1992.
As required by OMB Circular A-128, we have performed auditing procedures to
test compliance with the requirements governing types of services allowed or
unallowed and eligibility that are applicable to those transactions. Our
procedures were substantially less in scope than an audit, the objective of
which is the expression of an opinion on the City's compliance with these
requirements. Accordingly, we do not express such an opinion.
With respect to the items tested, the results of those procedures disclosed no
material instances of noncompliance with the requirements listed in the
preceding paragraph. With respect to items not tested, nothing came to our
attention that caused us to believe that the City had not complied, in all
material respects, with those requirements.
This report is intended for the information of members of City Council,
management of the City and the Controller of the State of California.
However, upon acceptance by the City, this report is a matter of public record
and its distribution is not limited.
October 9, 1992
Attachment
Program
CITY OF CARLSBAD, CALIFORNIA
Special Tests and Provisions
Year ended June 30, 1992
Compliance Requirement
Lower Income • The Public Housing Agency (PHA) is required to review the
Housing
Assistance
Program
(CFDA
#14.156)
contract rent (except for housing vouchers) and utility
allowances for each unit to ensure that they do not exceed
certain rent limitations.
• Except for housing vouchers, the PHA is required to annually
adjust contract rents and tenant utility allowances upon
request from the owner. Special adjustments may also be
granted to the extent determined necessary by the PHA and the
Department of Housing and Urban Development (HUD).
• The PHA is required to conduct an initial (and annually
thereafter) inspection of units prior to executing the
housing assistance payment contract to ensure that the units
meet Housing Quality Standards (applies to existing housing
and moderate rehabilitation programs only).
Community
Development
Block Grant/
Entitlement
Grants (CFDA
#14.218)
• The grantee is required to enter into written agreements with
its subrecipients that meet certain criteria before
disbursing funds to the subrecipients.
• Community Development Block Grant (CDBG) funds (and local
funds to be repaid with CDBG funds) cannot be obligated or
expended before receipt of HUD's approval of a Request for
Release of Funds (RROF) and environmental certification,
except for exempt activities under 24 CFR 58.34.
• CDBG projects must have an environmental review made unless
they meet criteria specified in the Code of Federal
Regulations that would exempt or exclude them from the
requirements.
• The grantee must accurately account for any program income
generated from the use of CDBG Funds and must treat such
income as additional CDBG Funds subject to all program rules.
CITY OF CARLSBAD, CALIFORNIA
Schedule of Findings and Questioned Costs
For the year ended June 30, 1992
PROGRAM: Drug-Free Workplace Act
Compliance Requirement:
The City must publish a statement notifying employees that the unlawful
manufacture, distribution, dispensing, possession or use of a controlled
substance is prohibited in the City's workplace.
Finding;
The City has not published a policy statement notifying fire and police
employees that the unlawful manufacture, distribution, dispensing, possession
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 the
Drug-Free Workplace Act for fire and police employees. Once the policy
statement is finalized, it should be published in order to ensure that all
fire and police employees are notified that compliance is required.
City's Response;
Council adopted a drug policy for Carlsbad City Employees' Association in
January 1992. However, the City has not yet concluded its meet and confer
obligation, as defined by the Meyers-Millias-Brown Act, with the Carlsbad
Police Officers' Association and the Carlsbad Firefighters' Association. At
the conclusion of these discussions, the City will issue a policy and will
conduct training with all employees' managers and supervisors in compliance
with the Drug-Free Workplace Act.
PROGRAM; Lower Income Housing Assistance Program
1. Compliance Requirement;
The City is required to adjust contract rents and tenant utility
allowances annually on request from the owner.
Finding;
For case file #4346, the City increased the amount of rent paid to the
landlord; however, this increase was not supported by a request from the
landlord to raise the rent. We did note subsequent correspondence between
the City and the landlord regarding the increase in rent.
CITY OF CARLSBAD, CALIFORNIA
Schedule of Findings and Questioned Costs, Continued
Recommendation;
We recommend that a checklist be utilized for case files to ensure that
all required documentation is contained and any pending items are resolved.
City's Response;
The Housing Authority has developed a "File Contents Checklist" to be
utilized by caseworkers when processing initial, annual and interim
recertifications. The implementation of this checklist will ensure that
all required documentation is received prior to issuing the Housing
Assistance Payment.
The supporting documentation for case file #4346 has been received.
2. Compliance Requirement:
See requirement on previous page.
Finding;
For case file #3545, the City entered an incorrect rent amount on the
tenant summary form. The landlord requested a rent increase to $665 and a
rent amount of $675 was entered on the summary form. This $10 monthly
overpayment occurred for six months.
Recommendation;
The procedures in place to review tenant summary forms should include a
re-verification of rent amounts by a second person to ensure proper
amounts are entered.
City's Response;
The Housing Program Manager is reviewing all case files processed for
payment. This review includes verifying that the amount of rent increase
granted does not exceed the amount requested. Additionally, staff has
received remedial training in this area.
The $60.00 overpaid for case file #3545 has been recouped.
3. Compliance Requirement;
Financial reports must be submitted on a periodic basis within the
required timeframe.
10
CITY OF CARLSBAD, CALIFORNIA
Schedule of Findings and Questioned Costs, Continued
Finding;
We noted that the City submitted its Requisition for Partial Payment of
Annual Contributions for the quarter ended September 30, 1991 on
November 27, 1991, which was after the deadline of November 15, 1991. The
City indicated that a verbal extension was granted by HUD; however, they
could not provide written approval for the extension.
Recommendation ;
Any communication between the City and regulatory agencies relating to
compliance with rules and regulations should be in writing and retained by
the City.
City's Response;
Any requests for extensions or other matters relating to compliance with
rules and regulations will be communicated to the Department of Housing
and Urban Development in writing and copies will be available in the
pertinent housing files.
PROGRAM; Community Development Block Grant (CDBG)
As part of our testwork on the City's CDBG program, we examined a sample of 16
expenditures totaling approximately $176,000. Total federal expenditures in
the CDBG program for fiscal year 1992 were $313,479.
1. Compliance Requirement;
CDBG funds may be used for activities including planning activities and
administrative costs.
Finding;
During our review of expenditures, we noted that amounts being charged
relating to administering the CDBG program are based on budgeted estimates
of labor costs and not actual expenditures. The City should be using
actual time spent when charging administration time to CDBG. The amount
of the budgeted costs identified in our review was $738.
Recommendation;
The City should discontinue using estimates to determine administrative
charges to the CDBG program and should develop a method for charging such
costs based on actual hours worked.
11
CITY OF CARLSBAD, CALIFORNIA
Schedule of Findings and Questioned Costs, Continued
City's Response;
The City of Carlsbad will no longer rely on managerial estimates to
determine the actual charges for CDBG program administration. A system
has been developed and implemented to record and monitor staff time spent
on CDBG administrative activities on a daily basis. Each employee working
on the CDBG program is recording hours on a detailed timesheet. The
figures are evaluated on a quarterly basis and a year-end adjustment will
be made to reflect the actual administrative expenses incurred instead of
the original estimates for costs.
A similar finding was made by the U.S. Department of Housing and Urban
Development and the actions described above resulted in the finding being
cleared.
2. Compliance Requirement;
Financial reports must be submitted on a periodic basis within the
required timeframe.
Finding;
The City's Federal Cash Transactions Report for the quarter ended
September 30, 1991 for its Community Block Development Grant was submitted
on November 14, 1991 which is not within the required fifteen-day deadline.
Recommendation;
The City should emphasize the procedures currently used to monitor the
timely submission of quarterly reports.
City's Response;
Instructions included in the work folder state that the report is due at
the Department of Housing and Urban Development no later than the
fifteenth day of the month following the end of the quarter.
We are currently mailing the report no later than the tenth day.
12
CITY OF CARLSBAD, CALIFORNIA
Status of Prior Year Findings
For the year ended June 30, 1992
PROGRAM; Drug-Free Workplace Act
Compliance Requirement: The City must publish a statement notifying employees
that the unlawful manufacture, distribution, dispensing, possession or use of
a controlled substance is prohibited in the City's workplace.
Finding;
The City has published a policy statement that does not include fire and
police employees. See Schedule of Findings and Questioned Costs.
13
Peat Marwick
Certified Public Accountants
750 B Street
San Diego, CA 92101
Independent Auditors' Report
on Internal Controls at the
General Purpose Financial Statement Level
The Honorable Members of City Council
City of Carlsbad, California:
We have audited the general purpose financial statements of the City of
Carlsbad, California (the City), as of and for the year ended June 30, 1992,
and have issued our report thereon dated October 9, 1992.
We conducted our audit in accordance with generally accepted auditing
standards and Government Auditing Standards, issued by the Comptroller General
of the United States. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the general purpose
financial statements are free of material misstatement.
In planning and performing our audit of the general purpose financial
statements of the City for the year ended June 30, 1992, we considered its
internal control structure in order to determine our auditing procedures for
the purpose of expressing our opinion on the general purpose financial
statements and not to provide assurance on the internal control structure.
The management of the City is responsible for establishing and maintaining an
internal control structure. In fulfilling this responsibility, estimates and
judgments by management are required to assess the expected benefits and
related costs of internal control structure policies and procedures. The
objectives of an internal control structure are to provide management with
reasonable, but not absolute, assurance that assets are safeguarded against
loss from unauthorized use or disposition, and that transactions are executed
in accordance with management's authorization and recorded properly to permit
the preparation of general purpose financial statements in accordance with
generally accepted accounting principles. Because of inherent limitations in
any internal control structure, errors or irregularities may nevertheless
occur and not be detected. Also, projection of any evaluation of the
structure to future periods is subject to the risk that procedures may become
inadequate because of changes in conditions or that the effectiveness of the
design and operation of policies and procedures may deteriorate.
Member Firm of
Klynveld Peat Marwick Goerdeler
For the purpose of this report, we have classified the significant internal
control structure policies and procedures in the following categories:
1. Accounting Controls
• Purchases/Disbursements
• Payroll
• Revenue/Receipts
• Investments
2. Administrative controls established to ensure compliance with laws and
regulations.
Our consideration of the internal control structure included all of the
control categories listed above except that we did not evaluate the internal
control structure over the revenue/receipts cycle or investments because we
believed the audit could be performed more efficiently by expanding
substantive testing rather than placing reliance on the internal control
structure and because these categories are not significant to the major
federal financial assistance programs. The purpose of our consideration of
the internal control structure was to determine the nature, timing, and extent
of the auditing procedures necessary for expressing an opinion on the general
purpose financial statements.
Our consideration of the internal control structure would not necessarily
disclose all matters in the internal control structure that might be material
weaknesses under standards established by the American Institute of Certified
Public Accountants. A material weakness is a reportable condition in which
the design or operation of one or more of the specific internal control
structure elements does not reduce to a relatively low level the risk that
errors or irregularities in amounts that would be material in relation to the
general purpose financial statements being audited may occur and not be
detected within a timely period by employees in the normal course of
performing their assigned functions. We noted no matters involving the
internal control structure and its operation that we consider to be material
weaknesses as defined above.
15
However, we noted certain matters involving the internal control structure and
its operation that we have reported to the management of the City in a
separate letter dated October 9, 1992.
This report is intended for the information of members of City Council,
management of the City, and the Controller of the State of California.
However, upon acceptance by the City, this report is a matter of public record
and its distribution is not limited.
October 9, 1992
16
Peat Marwick
Certified Public Accountants
750 B Street
San Diego, CA 92101
Independent Auditors' Report
on the Internal Control Structure at the
Federal Financial Assistance Program Level
The Honorable Members of City Council
City of Carlsbad, California:
We have audited the general purpose financial statements of the City of
Carlsbad, California (the City), for the year ended June 30, 1992, and have
issued our report thereon dated October 9, 1992. We have also audited the
City's compliance with requirements applicable to major federal financial
assistance programs and have issued our report thereon dated October 9, 1992.
We conducted our audits in accordance with generally accepted auditing
standards; Government Auditing Standards, issued by the Comptroller General of
the United States; and Office of Management and Budget (OMB) Circular A-128,
Audits of State and Local Governments. Those standards and OMB Circular A-128
require that we plan and perform the audit to obtain reasonable assurance
about whether the general purpose financial statements are free of material
misstatement and about whether the City complied with laws and regulations,
noncompliance with which would be material to a major federal financial
assistance program.
In planning and performing our audits for the year ended June 30, 1992, we
considered the City's internal control structure in order to determine our
auditing procedures for the purpose of expressing our opinions on the City's
general purpose financial statements and on its compliance with requirements
applicable to major programs and not to provide assurance on the internal
control structure. This report addresses our consideration of internal
control structure policies and procedures relevant to compliance with
requirements applicable to federal financial assistance programs. We have
addressed policies and procedures relevant to our audit of the general purpose
financial statements in a separate report dated October 9, 1992.
The management of the City is responsible for establishing and maintaining an
internal control structure. In fulfilling this responsibility, estimates and
judgments by management are required to assess the expected benefits and
17
Member Firm of
Klynveld Peat Marwick Goerdeler
related costs of internal control structure policies and procedures. The
objectives of an internal control structure are to provide management with
reasonable, but not absolute, assurance that assets are safeguarded against
loss from unauthorized use or disposition, that transactions are executed in
accordance with management's authorization and recorded properly to permit the
preparation of general purpose financial statements in accordance with
generally accepted accounting principles, and that federal financial
assistance programs are managed in compliance with applicable laws and
regulations. Because of inherent limitations in any internal control
structure, errors, irregularities, or instances of noncompliance may
nevertheless occur and not be detected. Also, projection of any evaluation of
the structure to future periods is subject to the risk that procedures may
become inadequate because of changes in conditions or that the effectiveness
of the design and operation of policies and procedures may deteriorate.
For the purpose of this report, we have classified the significant internal
control structure policies and procedures used in administering federal
financial assistance programs in the following categories:
Accounting Controls
• Purchases/disbursements
• External financial reporting
Administrative Controls
General requirements;
Political activity
Civil rights
Cash management
Davis Bacon Act
Relocation assistance and real property acquisition
Federal financial reports
Allowable costs/cost principles
Drug-Free Workplace Act
Administrative requirements
Specific requirements;
• Types of services
• Eligibility
• Reporting
• Special tests and provisions, if any
For all of the internal control structure categories listed above, we obtained
an understanding of the design of relevant policies and procedures and
determined whether they have been placed in operation, and we assessed control
risk.
18
During the year ended June 30, 1992, the City expended 81 percent of its total
federal financial assistance under major federal financial assistance programs.
We performed tests of controls, as required by OMB Circular A-128, to evaluate
the effectiveness of the design and operation of internal control structure
policies and procedures that we considered relevant to preventing or detecting
material noncompliance with specific requirements, general requirements,
requirements governing claims for advances and reimbursements, and amounts
claimed or used for matching that are applicable to the City's major federal
financial assistance programs, which are identified in the accompanying
Schedule of Federal Financial Assistance. Our procedures were less in scope
than would be necessary to render an opinion on these internal control
structure policies and procedures. Accordingly, we do not express such an
opinion.
Our consideration of the internal control structure would not necessarily
disclose all matters in the internal control structure that might be material
weaknesses under standards established by the American Institute of Certified
Public Accountants. A material weakness is a reportable condition in which
the design or operation of one or more of the internal control structure
elements does not reduce to a relatively low level the risk that noncompliance
with laws and regulations that would be material in relation to a federal
financial assistance program may occur and not be detected within a timely
period by employees in the normal course of performing their assigned
functions. We noted no matters involving the internal control structure and
its operations that we considered to be material weaknesses as defined above.
We also noted other matters involving the internal control structure and its
operation that we have reported to the management of the City of Carlsbad,
California in a separate letter dated October 9, 1992.
This report is intended for the information of members of the City Council,
management of the City, and the Controller of the State of California.
However, upon acceptance by the City, this report is a matter of public record
and its distribution is not limited.
October 9, 1992
19
KPMG Peat Marwick
Certified Public Accountants
750 B Street Telephone 619 233 8000 Telecopier 619 696 0121
San Diego, CA 92101
March 12, 1992
Mr. James F. Elliott
Financial Management Director
City of Carlsbad
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.
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;
A report on the component unit financial statements of the Carlsbad
Redevelopment Agency;
KPMG Peat Marwick
Mr. James F. Elliott
City of Carlsbad
March 12, 1992
Page 2
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
- of the structure made as a part of the audit of the general purpose financial
statements; and
• A report on compliance with laws and regulations that may have a material
effect on the general purpose financial statements.
• A report on compliance with laws and regulations relating to the Carlsbad
Redevelopment Agency.
For the City's federal assistance programs:
• A report on the supplementary schedule of the City's federal financial
assistance programs;
A report on compliance with laws and regulations identifying all findings of
noncompliance and questioned costs;
• A report on the internal control structure used in administering federal
financial assistance programs; and
• A report on fraud, abuse, or illegal acts (or indications of such acts), if
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.
KPM&?ea\. Marwick
Mr. James F. Elliott
City of Carlsbad
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:
Comprehensive Annual Financial Report $ 31,900
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
Building Authority of the City of Carlsbad 775
Parking Authority of the City of Carlsbad 775
Gann Limit 1,000
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
John H. Davis
Partner
JHD:dcm
Enclosure
cc: Ms. Lisa Hildabrand
Accepted by:
Signed (RAYMOND R. PATCHETT, City Manager Date
CARLSBAD REDEVELOPMENT AGENCY
Notes to Combined Financial Statements
June 30, 1992
(1) Organization and Summary of Significant Accounting Policies
The Carlsbad Redevelopment Agency (the Agency) was established in July
1976 with the adoption of Ordinance No. 1191 by the Carlsbad City
Council pursuant to the California Community Redevelopment Law, now
codified as Part 1, Division 2k, of the State of California Health and
Safety Code. The Agency has the broad authority to acquire,
rehabilitate, develop, administer and sell or lease property. The
Agency is not subject to federal or state income taxes.
The principal objectives of the Agency are to eliminate blighted
influences within the "Village Area" of the City of Carlsbad, stimulate
and attract private investment, generate added employment through
increased specialty goods and services and expand the City's sales tax
revenue.
The Agency is an integral part of the reporting entity of the City of
Carlsbad (the City). The funds and account group of the Agency have
been included within the scope of the general purpose financial
statements of the City because the City Council exercises oversight
responsibility over the operations of the Agency. Only the funds and
account group of the Agency are included herein; therefore, these
financial statements do not purport to represent the financial position
or results of operations of the City of Carlsbad, California.
The accounting policies of the Agency conform to generally accepted
accounting principles as applicable to governmental units. The
following is a summary of the more significant policies:
(a) Basis of Presentation;
The accounts of the Agency are organized on the basis of funds and an
account group, each of which is considered to be a separate
accounting entity. The operations of each fund and account group
are accounted for by providing a separate set of self-balancing
accounts that comprise its assets, liabilities, fund balance,
revenues, and expenditures. The various funds and account group
are summarized by type in the financial statements. The fund types
and account group used by the Agency are as follows:
GOVERNMENTAL FUND TYPES;
Governmental funds are used to account for the Agency's expendable
financial resources and related liabilities. The measurement focus
is upon determination of changes in financial position. The
following are the Agency's governmental fund types:
(Continued)
2
CARLSBAD REDEVELOPMENT AGENCY
Notes to Combined Financial Statements, Continued
(1) Organization and Summary of Significant Accounting Policies. Continued
(a) Basis of Presentation. Continued;
Special Revenue Funds
Special revenue funds are used to account for revenues derived
from specific sources (other than major capital projects) that
are restricted by law or administrative regulation to
expenditures for specified purposes.
Debt Service Funds
Debt service funds are used to account for the accumulation of
resources for, and payment of general long-term debt principal,
interest and related costs.
Capital Projects Funds
Capital projects funds are used to account for financial
resources to be used for the acquisition or construction of major
capital facilities.
GENERAL LONG-TERM DEBT ACCOUNT GROUP;
This account group is used to establish accounting control and
accountability for the Agency's general long-term debt. This
account group is used to account for all long-term obligations of
the Agency.
(b) Measurement Focus and Basis for Accounting!
Governmental fund types are accounted for on a "spending" measurement
focus. Accordingly, only current assets and current liabilities
are included on their balance sheets, and the reported fund balance
provides an indication of available, spendable resources.
Operating statements for governmental fund types report increases
(revenues) and decreases (expenditures) in available spendable
resources.
(Continued)
3
CARLSBAD REDEVELOPMENT AGENCY
Notes to Combined Financial Statements, Continued
(1) Organization and Summary of Significant Accounting Policies. Continued
(b) Measurement Focus and Basis for Accounting. Continued;
The modified accrual basis of accounting is utilized by the
governmental fund types. Revenues are recognized when susceptible
to accrual, i.e., both measurable and available. Available means
collectible within the current period or soon enough thereafter to
be used to pay liabilities of the current period.
Revenues that are accrued include the tax increment on real property
taxes and interest income.
Real property taxes are levied on October 15 against owners of record
at March 1. The taxes are due in two installments, on November 1
and February 1, and become delinquent after December 10 and
April 10, respectively. Tax liens attach annually as of 12:01 a.m.
on the first day of March in the fiscal years for which the taxes
are levied. Under the provisions of NCGA Interpretation 3,
property tax revenue is recognized in the fiscal year for which the
taxes have been levied, provided it is collected within 60 days of
the end of the fiscal year.
Governmental fund expenditures are recognized when the liability is
incurred, except for principal and interest on long-term debt which
is recognized when due.
(c) Encumbrances;
Encumbrance accounting, under which purchase orders, contracts and
other commitments for the expenditure of monies are recorded in
order to reserve that portion of the applicable appropriation, is
employed as an extension of formal budgetary control in the
governmental funds. Encumbrances outstanding at year-end do not
constitute expenditures or liabilities, but are reported as
reservations of fund balance for subsequent-year expenditures.
(d) Cash and Investments;
The Agency participates in the pooled cash and investment fund of the
City of Carlsbad. Pooled investments are stated at cost or
amortized cost. The Agency's equity in the pooled cash is included
in the financial statements as cash and investments. Interest
earned as a result of the pooling is allocated to the Agency based
on its average monthly balances.
(Continued)
4
CARLSBAD REDEVELOPMENT AGENCY
Notes to Combined Financial Statements, Continued
(1) Organization and Summary of Significant Accounting Policies. Continued
(e) Compensated Absences;
Vacation pay is payable to employees at the time used or upon
termination of employment. The cost of accumulated vacation
expected to be paid in the next 12 months is recorded as a fund
liability; currently no amounts are expected to be paid after 12
months.
(f) Total Columns:
Total columns on the accompanying combined financial statements are
captioned "Totals (Memorandum Only)" to indicate that they are
presented only to facilitate financial analysis. Data in these
columns do not present financial position, results of operations,
or changes in fund balance in conformity with generally accepted
accounting principles. Such data is not comparable to a
consolidation. Interfund eliminations have not been made in the
aggregation of this data.
(2) Budgetary Data
The budget for the Agency is established by the City of Carlsbad. The
City Manager is authorized to make transfers of appropriated amounts
within a fund and function for up to $15,000. Revisions that alter the
total appropriations of any fund or function must be approved by the
City Council. A mid-year budget review is conducted each year. Any
major changes to the adopted budget are approved by the City Council at
that time.
Budgets are adopted on the modified accrual basis, except that
encumbrances are treated as budgeted expenditures in the year purchases
are committed. Expenditures may not exceed budgeted appropriations at
the departmental level. Unencumbered appropriations lapse at
year-end. Annual budgets are adopted for the special revenue and debt
service funds.
There were no encumbrances outstanding for the debt service fund as of
June 30, 1992.
(Continued)
5
CARLSBAD REDEVELOPMENT AGENCY
Notes to Combined Financial Statements, Continued
(2) Budgetary Data. Continued
The following schedule is a reconciliation of the budgetary and GAAP fund
balances:
Special Revenue Debt Service
Fund balance - budgetary basis $ 2,019,072 2,287,588
Encumbrances outstanding at year-end 6,196 -
Debt service on advances from
City of Carlsbad - not budgeted - (530.531)
Fund balance - GAAP basis $ 2.025.268 1.757.057
(3) Cash and Investments
The Agency participates in the pooled cash fund of the City. In
addition, some deposits are held separately by several of the Agency's
funds.
Authority for Deposits and Investments;
The Agency's investment policy and state statutes authorize the Agency to
invest in demand and time deposits, obligations of the U.S. Treasury,
its agencies and instrumentalities, commercial paper rated A-l by
Standard and Poor's Corporation or P-l by Moody's Commercial Paper
record, banker's acceptances with a maximum maturity of 270 days,
repurchase and reverse repurchase agreements, certificates of deposit
with national and state licensed or chartered banks or federal or state
savings and loan associations, money market and mutual funds whose
portfolios consist of one or more of the foregoing investments, and the
State Treasurer's investment pool.
State statutes require that all deposits be insured or collateralized.
Depositories holding public funds on deposit are required to maintain
collateral in the form of a pool of securities with the agent of the
depository having a market value of at least 10 to 50 percent in excess
of the total amount of all public funds on deposit.
(Continued)
6
CARLSBAD REDEVELOPMENT AGENCY
Notes to Combined Financial Statements, Continued
(3) Cash and Investmentst Continued
Deposits;
The following summary presents the amount of the Agency's deposits which
are fully insured or collateralized with securities held by the Agency
or its agent in the Agency's name (Category One), those deposits which
are collateralized with securities held by the pledging financial
institution's trust department or agent in the Agency's name (Category
Two), and those deposits which are not collateralized or are
collateralized with securities held by the pledging financial
institution or its trust department or agent but not in the Agency's
name (Category Three) at June 30, 1992.
Total
Category Category Category Bank Carrying
One Two Three Balance Amount
Cash on deposit
with trustee $ - 2.825.795 1.151.608 3.977.403 3.977.403
Investments;
At June 30, 1992, the Agency had $3,267,590 invested in the pooled cash
fund of the City. Since securities are not used to evidence the
Agency's investment in this fund, these amounts cannot be classified
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 which is
administered by the California Public Employees Retirement System
(PERS). PERS is an agent multiple-employer public employee retirement
system that acts as a common investment and administrative agent for
participating public entities within the state of California.
(Continued)
CARLSBAD REDEVELOPMENT AGENCY
Notes to Combined Financial Statements, Continued
(4) Pension Plan. Continued
All full-time employees are eligible to participate as members of the
PERS. Benefits vest after an employee has been a member of the plan
for five years. Employees are eligible to retire after age 50 with 5
years of credited service. Annual retirement benefits are determined
based on age at retirement, the length of membership service and the
amount of earnings based on the highest twelve consecutive months
average. The PERS also provides death and disability benefits. These
benefit provisions and all other requirements are established by state
statute.
Employees are required to make contributions equaling 7 percent of gross
pay. This is paid by the City for the benefit of the employees in lieu
of salary. The City is also required to contribute the remaining
amounts necessary to fund the benefits for its members, using the
actuarial basis recommended by the PERS actuaries and actuarial
consultants and adopted by the PERS Board of Administration.
Additional disclosures required by Governmental Accounting Standards
Board Statement No. 5 are not available for the Agency as a separate
entity. This information for the City's reporting entity is presented
in the Comprehensive Annual Financial Report of the City of Carlsbad.
(5) Long-term Debt
The following is a summary of changes in long-term debt for the year
ended June 30, 1992:
Advances from
the City
of Carlsbad
Bonds payable
Principal
Balance
July 1,
1991
$ 6,989,854
11.745.000
$ 18.734.854
Additional Principal
Obligations Retirements
Principal
Balance
June 30,
1992
500,731 29,800 7,460,785
- 270.000 11.475.000
500.731 299.800 18.935.785
(Continued)
8
CARLSBAD REDEVELOPMENT AGENCY
Notes to Combined Financial Statements, Continued
(5) Long-term Debt. Continued
Since activation of the Redevelopment Agency in July 1976, the City has
advanced the Agency monies for approved expenditures. Advances from
the City bear interest at 10% per year. There is no stated maturity
date.
Bonds payable consist of $11,475,000 in 1988 Carlsbad Housing and
Redevelopment Commission Tax Allocation Bonds. Principal is due in
amounts ranging from $290,000 to $595,000 on April 1 of each year
through 2003, a principal payment of $2,890,000 on April 1, 2007, and a
principal payment of $3,950,000 on April 1, 2011. The principal
payments of $2,890,000 and $3,950,000 are subject to mandatory sinking
fund redemption which amounts are reflected in the debt service
requirements below. Interest is payable each year on October 1 and
April 1 at rates varying from 5.5% to 7.55% per annum.
Debt service requirements to maturity for the bonds, including sinking
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
2003-2007 5,860,824
2008-2011 4.750.280
22,108,664
Less amounts representing interest (10.633,664)
Bonds payable $ 11.475.000
At June 30, 1992, the Agency was in compliance with all significant debt
covenants.
(Continued)
9
CARLSBAD REDEVELOPMENT AGENCY
Notes to Combined Financial Statements, Continued
(6) Obligations Under Operating Leases
In June 1988, the Agency entered into an agreement to lease a parking lot
from a private party. The lease requires monthly rental payments of
$3,270 for twenty years. Rent expense was $39,240 for the year ended
June 30, 1992.
In May 1990, the Agency entered into an agreement to lease a parking lot
on Carlsbad Village Drive from a private party. The lease requires
monthly rental payments of $4,350 commencing July 1, 1991 for five
years. Total annual rent expense is $52,200.
The following is a schedule by year of future minimum rental payments
required under operating leases at June 30, 1992:
Annual
Year ending June 30. Rental Payments
1993 $ 91,440
1994 91,440
1995 93,794
1996 41,954
1997 41,954
Thereafter 526.119
Total minimum lease payments $ 886.701
(7) Fund Balances
Reserves for the loan receivable and low and moderate income housing are
established to show that certain assets are already committed to other
purposes and are not available for discretionary expenditures.
Reserve for debt service represents resources legally restricted to the
payment of general long-term debt principal and interest maturing in
future years.
Reserve for encumbrances represents commitments related to unperformed
contracts for services and undelivered goods.
Unreserved-designated for approved capital projects represents the fund
balance expected to be used for the acquisition or construction of
major capital facilities.
(Continued)
10
CARLSBAD REDEVELOPMENT AGENCY
Notes to Combined Financial Statements, Continued
(7) Fund Balances. Continued
Unreserved-undesignated balances represent the fund balance remaining
after reduction for reserved and designated fund balances.
(8) Other Required Individual Fund Disclosures
Expenditures exceeded appropriations in the following fund:
Expenditure Appropriation
Debt service fund - interest and
fiscal charges $ 863,326 863,288
Special revenue fund - general
government 104,309 98,113
The excess of expenditures over appropriations in the debt service fund
relates to fiscal charges and the excess of expenditures over
appropriations in the special revenue fund relates to various
expenditures.
Peat Marwick
Certified Public Accountants
750 B Street
San Diego, CA 92101
Independent Auditors' Report
On Compliance With Audit Guidelines
For California Redevelopment Agencies
The Board of Commissioners
Carlsbad Redevelopment Agency
Carlsbad, California:
We have audited the combined financial statements of the Carlsbad
Redevelopment Agency (a component unit of the City of Carlsbad, California) as
of and for the year ended June 30, 1992, and have issued our report thereon
dated October 9, 1992. These combined financial statements are the
responsibility of the Agency's management. Our responsibility is to express
an opinion on these combined financial statements based on our audit.
In connection with our audit, we performed the procedures contained in the
publication entitled Guidelines for Compliance Audits of California
Redevelopment Agencies, as promulgated by the Controller of the State of
California in connection with a review of the Agency's compliance with laws,
regulations and administrative requirements governing activities of the
Agency, as required by Section 33080.1 (a) of the Health and Safety Code of the
State of California. The procedures we preformed would not necessarily
disclose all instances of noncompliance because they were based on selective
tests of accounting records and related data.
During the performance of the aforementioned procedures, nothing came to our
attention that would lead us to believe that the Carlsbad Redevelopment Agency
of the City of Carlsbad did not comply with applicable laws, regulations and
administrative requirements governing its activities.
This report is to be used solely for filings with appropriate regulatory
agencies and is not intended for any other purpose. This restriction is not
intended to limit the distribution of this report which, upon acceptance by
the Agency, is a matter of public record.
fat
October 9, 1992
Member Firm of
Klynveld Peat Marwick Goerdeler