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HomeMy WebLinkAbout; ; 2005-06 Public Improvement Corporation Audit Report; 2006-06-30City of Carlsbad Public Improvement Corporation Financial and Compliance Report Year Ended June 30, 2006 McGladrey&Pullen Certified Public Accountants McGladrey & Pullen, LLP is an independent member firm of RSM International, an affiliation of independent legal entities. Contents a i a a a Independent Auditor's Report on the Financial Statements and Supplementary Information Financial Statements Statement of Net Assets and Governmental Fund Balance Sheet 2 Statement of Activities and Governmental Fund Statement of Revenues, Expenditures and Changes in Fund Balances 3 Notes to Financial Statements 4-7 Supplementary Information Combining Balance Sheet—Governmental Fund 8 Combining Statement of Revenues, Expenditures and Changes in Fund Balances— Governmental Fund 9^ Internal Control Structure and Compliance Matters Independent Auditor's Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards 10 2 a McGladrey&Pullen j| Certified Public Accountants 9 Independent Auditor's Report on the Financial Statements and Supplementary Information 9 ^ To the Board of Directors *•* City of Carlsbad Public Improvement Corporation _ Carlsbad, California «M m We have audited the accompanying basic financial statements of the City of Carlsbad Public Improvement *"* Corporation (the Corporation), a blended component unit of the City of Carlsbad, California, as of and for the year — ended June 30, 2006, as listed in the accompanying table of contents. These financial statements are the *"" responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial «** statements based on our audit. *g We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the 3 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 3 examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as H evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. am ^ In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position <•* of the governmental fund and governmental activities of the Corporation as of June 30, 2006, and the respective mm changes in financial position for the year then ended, in conformity with accounting principles generally accepted in «"* the United States of America. —" In accordance with Government Auditing Standards, we have also issued our report dated October 5, 2006 on our _ consideration of the Corporation's internal control over financial reporting and our tests of its compliance with certain <""- provisions of laws, regulations, contracts, grant agreements and other matters. The purpose of that report is to •- . describe the scope of our testing of internal control over financial reporting and compliance and the results of that ** testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is — » an integral part of an audit performed in accordance with Government Auditing Standards and should be considered *"* in assessing the results of our audit. **** The Corporation has not presented a Management's Discussion and Analysis required by Governmental Accounting 2 Standards Board (GASB) Statement No. 34 that the GASB has determined is necessary to supplement, although not required to be a part of, the basic financial statements. 1 Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. 3 The Combining Balance Sheet— Governmental Fund and Combining Statement of Revenues, Expenditures and Changes in Fund Balances— Governmental Fund, listed in the table of contents as supplementary information, are 9 presented for purposes of additional analysis and are not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, 5 in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole. / ' Riverside, California Octobers, 2006 McGladrey & Pullen, LLP is a member firm of RSM International, an affiliation of separate and independent legal entities. Financial Statements 1 a 2 a City of Carlsbad Public Improvement Corporation Statement of Net Assets and Governmental Fund Balance Sheet June 30, 2006 Assets Cash and Investments Interest Receivable Restricted Assets, cash and investments Total assets Liabilities Accrued Interest Payable Noncurrent Liabilities Due within one year Due in more than one year Total liabilities Fund Balance/Net Assets (Deficit) Fund Balance, reserved for debt service Fund Balance, designated for continuing appropriations Fund Balance, undesignated Total liabilities and fund balances Net Assets (Deficit), unrestricted Total net assets (deficit) and fund balances Governmental Adjustments Statement of Fund (see Note 2) Net Assets $ 876,778 $ 15,684 659,500 $ 1,551,962 $ $ - $ $ - $ $ 659,500 $ 41,358 851,104 $ 1,551,962 $ $ $ 40,373 A $ 670,000 B 1,435,000 B 2,145,373 $ (659,500) C $ (41,358) C (851,104) C (593,411) C (2,145,373) $ 876,778 15,684 659,500 1,551,962 40,373 670,000 1,435,000 2,145.373 (593,411) (593,411) The notes to the financial statements are an integral part of this statement. City of Carlsbad Public Improvement Corporation Statement of Activities and Governmental Fund Statement of Revenues, Expenditures and Changes in Fund Balance For the Year Ended June 30,2006 Expenditures/expenses, debt service: Principal Interest on long-term debt and fiscal charges Total expenditures/expenses Governmental Fund $ 635,000 113,058 748,058 Adjustments (see Note 2) $ (635,000) (11,642) (646,642) B A Statement of Activities $ 101,416 101,416 Program revenues: Lease payments Investment earnings Total program revenues Excess of revenues over expenditures and change in fund balance Change in net assets Fund balance/net assets (deficit) at beginning of year Fund balance/net assets (deficit) at end of year $ 800,000 58,197 858,197 110,139 1,441,823 1,551,962 $ - - (110,139) 756,781 (2,792,015) (2,145,373) 800,000 58,197 858,197 756,781 (1,350,192) $ (593,411) The notes to the financial statements are an integral part of this statement. ^ City of Carlsbad Public Improvement Corporation 3 Notes to Financial Statements 3 Note 1. Summary of Significant Accounting Policies m The City of Carlsbad Public Improvement Corporation (the Corporation) was organized on June 1, 1988 under the m Nonprofit Public Benefit Corporation law for the purpose of financing and constructing certain improvements. The Corporation is not subject to federal or state income taxes. 3 Reporting entity: Government Accounting Standards Board (GASB) Statement No. 14, The Financial Reporting 3 Entity, defines the reporting entity as the primary government and those component units for which the primary government is financially accountable. Financial accountability is defined as appointment of a voting majority of the 3 component unit's Board and either (a) the primary government has the ability to impose its will or (b) the possibility that the component unit will provide a financial benefit to or impose a financial burden on the primary government. 3 Since the Council of the City of Carlsbad, California, (the City) also serves as the Board of Directors of the Corporation, the City, in effect, has the ability to influence and control operations. Therefore, the City has oversight 3 responsibility for the Corporation. Consequently, the financial statements of the Corporation are included in the City's ^ Comprehensive Annual Financial Report. There are no entities, which are component units of the Corporation. The *•» Corporation has the same fiscal year as the City. The City's financial statements can be obtained from the Finance «. Department of the City. _ The accounting policies of the Corporation conform to accounting principles generally accepted in the United States *"" of America as applicable to governmental units. The following is a summary of the more significant policies: 3 Measurement focus, basis of accounting, and financial statement presentation: The Government-wide m Financial Statements (i.e., the Statement of Net Assets and the Statement of Activities) are reported using the— economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned ^ and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. ~ Governmental Fund Financial Statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and ™ available. Revenues are considered available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the government considers revenues to be available 2 if they are collected within 60 days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. Principal and interest on long-term debt are recorded as fund !Z liabilities when due or when amounts have been accumulated in the debt service fund for payments to be made early ^ in the following year. Amounts reported as program revenues include lease and installment sale payments and interest earned on « investments. * Use of estimates: The preparation of financial statements requires management to make estimates and ,_ assumptions that affect the amounts reported in the financial statements and accompanying note disclosures. * Accordingly, actual results could differ from those estimates. 3 Cash and investments: Investments are reported in the accompanying balance sheet at fair value, except for *•> certain certificates of deposit and investment contracts that are reported at cost because they are not transferable ** and they have terms that are not affected by changes in market interest rates. "*" Changes in fair value that occur during a fiscal year are recognized as interest on investments reported for that fiscal ^ year. Interest on investments includes interest earnings, changes in fair value, and any gains or losses realized upon "" the liquidation, maturity or sale of investments. City of Carlsbad Public Improvement Corporation Notes to Financial Statements Note 1. Summary of Significant Accounting Policies, Continued Long-term obligations: In the Government-wide Financial Statements, long-term debt and other long-term obligations are reported as liabilities in the applicable Governmental Activities Statement of Net Assets. Fund equity: The reserved portion of the fund balances represents those amounts that have been legally identified for the specific purpose or represents amounts which are not available to liquidate current liabilities. The unreserved portion represents the amount available for future appropriations. Designated fund balances represent tentative plans for the future use of financial resources. Use of restricted/unrestricted net assets: When an expense is incurred for purposes for which both restricted and unrestricted net assets are available, the Corporation's policy is to apply restricted net assets first. Unrestricted net assets: The Corporation's unrestricted net assets are in a deficit position primarily because long- term debt is in excess of assets owned by the Corporation. The Corporation issues debt for construction and/or acquisition of assets, which it then turns over to the City. Note 2. Adjustments The following adjustments were made in the conversion of the Governmental Fund Balance Sheet to the Statement of Net Assets, as per GASB Statement No. 34: A. To record accrued interest on long-term debt as of June 30,2006 not recorded in governmental funds as it is recognized as expenditures when due. B. To record current and long-term portions of long-term debt as it is not recognized in the governmental funds until amounts are due and payable. C. To reclassify fund balance to net assets. The following adjustments were made in the conversion of the Governmental Fund Statement of Revenues, Expenditures and Changes in Fund Balances to the Statement of Activities, as per GASB Statement No. 34: A. Interest expense on long-term debt in the Statement of Activities differs because of the effect of additional accrued interest. B. Principal payments in the Statement of Activities differs because the repayment of principal consumes current financial resources of governmental funds; however, the repayment does not have any effect on net assets in the Statement of Activities. City of Carlsbad Public Improvement Corporation Notes to Financial Statements Note 3. Cash and Investments 1 Cash and investments: The Corporation's cash and invested cash are pooled with the City's cash and invested jj cash. Income from the investment of pooled cash is allocated to Corporation funds on a monthly basis, based upon the average monthly balance of the fund as a percent of the average monthly total pooled cash balance. Individual JH investments cannot be identified with any single fund because the City may be required to liquidate its investments at any time to cover large cash outlays required in excess of normal operating needs. Cash and invested cash consist 3 of U.S. government-backed securities and investments in the State of California Local Agency Investment Fund as well as corporate notes. The City values all of its cash and invested cash at fair value on a portfolio basis. The City 3 manages its pooled idle cash and investments under a formal investment policy that is reviewed by the Investment Committee and adopted annually by the City Council and that follows the guidelines of the State of California 2 Government Code. 3 Invested cash is stated at fair value. The increase in the fair value of investments is recognized as an increase to interest income revenue. The City normally holds investments to term; therefore, no realized gain/loss is recorded.«g «, Citywide information concerning cash and investments for the year ended June 30, 2006, including authorizedm investments, custodial credit risk, credit and interest rate risk for debt securities and concentration of investments, M carrying amount and market value of deposits and investments may be found in the notes to the City's Comprehensive Annual Financial Report. 3 Restricted cash and investments: The Trust Agreement by and among BNY Western Trust Company, as trustee, — and the Corporation, dated February 1, 1997, authorizes the trustee to invest in Federal Treasury and Agency """ Securities, interest-bearing demand or time deposits, certain obligations of U.S. corporations, money market funds, ~ commercial paper rated A-1 by Standard & Poor's Corporation and P-1 by Moody's commercial paper with original ""* maturities of not more than 180 days, bankers acceptances with maturities of not more than 180 days and certain ~ tax-exempt obligations. ^ Restricted cash and investments are stated at fair value. The trustee holds all restricted cash and investments of the Corporation. ^ At June 30, 2006, the Corporation's restricted cash and investments, which consist of an investment contract in the H amount of $659,500, are not subject to custodial credit risk. ***m tut* w Note 4. Certificates of Participation 4* The following is a summary of the debt of the Corporation for the year ended June 30,2006:3 July 1.2005 Additions Reductions June 30,2006 One Year • Balance at Due Within 3 Refunding Certificates of Participation (Hosp Grove 2 Project) Series 1997 $ 2.740.000 $ - $ 635.000 $ 2.105.000 $ 670.000 City of Carlsbad Public Improvement Corporation Notes to Financial Statements Note 4. Certificates of Participation, Continued *" In 1997 the Corporation issued Refunding Certificates of Participation (Hosp Grove Project), 1997 Series (the """ certificates) pursuant to a Trust Agreement by and among the Corporation, the City and the Trustee. The certificates m bear interest at rates ranging from 4.4% to 4.7%, payable on August 1 and February 1, and mature on August 1 of each year through 2008. The Corporation is required to maintain a debt service reserve of $659,500. As of June 30, « 2006, the reserve balance held by the Corporation's trustee was $659,500. The certificates represent an undivided interest in lease payments made by the City to the Corporation for the lease of the Hosp Grove property from the Corporation. Under the terms of the lease agreement, the City is required to E make semiannual lease payments to the Corporation equal to the debt service requirements on these certificates of participation. The lease payments from the City are reflected as program revenues in the accompanying Statement of 6 Activities and Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balances. Debt service requirements to maturity for the certificates are as follows:5 Fiscal Years ending June 30, Principal Interest 2007 2008 2009 Note 6. Fund Balances 5The reserve for debt service represents resources legally restricted to the payment of long-term debt principal and interest maturing in future years. m $ 670,000 700,000 735,000 2,105,000 $ 81,820 50,645 17,273 149,738 s I e a a a a a a a **» *"" Supplementary Information 3 a a a City of Carlsbad Public Improvement Corporation Combining Balance Sheet—Governmental Fund June 30,2006 Hosp Grove Assets Lease Payment Reserve Total Cash and Investments Interest Receivable Restricted Assets, cash and investments Total assets 876,778 $ 15,684 659,500 876,778 $ 876,778 15,684 659,500 675,184 $ 1.551.962 Liabilities and Fund Balances Liabilities Fund Balance, reserved for debt service Fund Balance, designated for continuing appropriations Fund Balance, undesignated Total fund balances Total liabilities and fund balances 41,358 835,420 659,500 15,684 876.778 675,184 876,778 $ 659,500 41,358 851,104 1,551,962 675,184 $ 1.551.962 a a a a City of Carlsbad Public Improvement Corporation Combining Statement of Revenues, Expenditures and Changes in Fund Balances- Governmental Fund For the Year Ended June 30,2006 Revenues: Lease payments Investment earnings Total revenues Expenditures: Principal Interest on long-term debt and fiscal charges Total expenditures Excess of revenues over expenditures Other financing sources (uses): Transfers in Transfers out Total other financing sources (uses) Net change in fund balance Fund balance at beginning of year Hosp Lease Payment $ 800,000 20,803 820,803 635,000 113,058 748,058 72,745 37,498 37,498 110,243 766,535 Grove Reserve $ 37,394 37,394 - - 37,394 (37,498) (37,498) (104) 675,288 Total $ 800,000 58,197 858,197 635,000 113,058 748,058 110,139 37,498 (37,498) - 110,139 1,441,823 Fund balance at end of year 876.778 $ 675.184 $ 1,551.962 m Internal Control Structure and Compliance Matters *•* a a i a McGladrey&Pullen Certified Public Accountants Independent Auditor's Report on Internal Control over Financial Reporting and on Compliance and other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards To the Board of Directors City of Carlsbad Public Improvement Corporation Carlsbad, California We have audited the basic financial statements of the City of Carlsbad Public Improvement Corporation (Corporation), a blended component unit of the City of Carlsbad, California, as of and for the year ended June 30, 2006, and have issued our report thereon dated October 5,2006. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Internal Control over Financial Reporting In planning and performing our audit, we considered the Corporation's internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinion on the financial statements and not to provide assurance on the internal control over financial reporting. Our consideration of the internal control over financial reporting would not necessarily disclose all matters in the internal control over financial reporting that might be material weaknesses. A material weakness is a reportable condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that misstatements caused by error or fraud in amounts that would be material in relation to the 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 over financial reporting and its operation that we consider to be material weaknesses. Compliance and Other Matters As part of obtaining reasonable assurance about whether the Corporation's basic financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. This report is intended for the information of the Corporation's management and the Board of Directors, and is not intended to be, and should not be, used by anyone other than these specified parties. Riverside, California October 5,2006 McGladrey & Pullen, LLP is a member firm of RSM International, an affiliation of separate and independent legal entities. 10