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Home My WebLink About2023-05-18; Financial Auditor Communications to the City Council (Districts - All); Rocha, LauraTo the members of the: ' CITY COUNCIL Date~L0l23CA L CC ✓ CM _L/i.CM V DCM (3) U:::- May 18, 2023 Council Memorandum To: From: Via: Honorable Mayor Blackburn and Members of the City Council Laura Rocha, Deputy City Manager, A~strative Services Geoff Patnoe, Assistant City Manager ~ Re: Financial Auditor Co mmunications to th e City Council (Districts -All) {city of Carlsbad Memo ID# 2023044 This memorandum provides information on the regularly scheduled annual financial audit of the city that will be conducted by Lance, Soll & Lunghard, LLP (LSL). Background The city has contracted with LSL, to conduct the annual financial audit of the City of Carlsbad for the fiscal year ending June 30, 2023. Professional auditing standards require LSL to communicate certain matters and inquiries directly to members of the City Council. Attached for your reference is a letter from LSL regarding the timing and planning of the city's annual financial audit. Discussion LSL's responsibility, as described by professional auditing standards, is to express opinions about whether the financial statements prepared by the city's management are fairly presented, in all material respects, in conformity with U.S. generally accepted accounting principles. Mr. Bryan Gruber, CPA, is the engagement partner and is responsible for supervising the engagement. Next Steps Interim fiscal year-end fieldwork will begin in May 2023. Finance Department staff will begin closing the financial books of the city beginning in July 2023 in anticipation of the year-end audit fieldwork commencing in September 2023. The audit should conclude in November 2023, with the Annual Comprehensive Financial Report and other related audit reports issued shortly thereafter. Attachment: A. Letter from Lance, Soll & Lunghard, LLP cc: Scott Chadwick, City Manager Cindie McMahon, City Attorney Zach Korach, Finance Director Administrative Services Branch Finance Department 1635 Fa raday Avenue I Carlsbad, CA 92008 I 442-339-2430 t Ls~ .... •••• •• May 2, 2023 To the Honorable Mayor, and the Members of the City Council City of Carlsbad Attachment A We are engaged to audit the financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Carlsbad, California (the "City") for the year ended June 30, 2023. In addition, we were engaged to perform an audit of the financial statement for the Housing Successor and the Single Audit for the year ended June 30, 2023. Professional standards require that we provide you with the following information related to our audit. We would also appreciate the opportunity to meet with you to discuss this information further since a two-way dialogue can provide valuable information for the audit process. Our Responsibilities under U.S. Generally Accepted Auditing Standards, Government Auditing Standards and the Uniform Guidance As stated in our engagement letter dated May 2, 2023, our responsibility, as described by professional standards, is to express opinions about whether the financial statements prepared by management with your oversight are fairly presented, in all material respects, in conformity with U.S. generally accepted accounting principles. Our audit of the financial statements does not relieve you or management of your responsibilities. In planning and performing our audit, we will consider City of Carlsbad's internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinions on the financial statements and not to provide assurance on the internal control over financial reporting. We will also consider internal control over compliance with requirements that could have a direct and material effect on a major federal program in order to determine our auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with the Uniform Guidance. As part of obtaining reasonable assurance about whether City of Carlsbad's financial statements are free of material misstatement, we will perform tests of its compliance with certain provisions of laws, regulations, contracts, and grants. However, providing an opinion on compliance with those provisions is not an objective of our audit. Also in accordance with the Uniform Guidance, we will examine, on a test basis, evidence about City of Carlsbad's compliance with the types of compliance requirements described in the U.S. Office of Management and Budget (0MB) Compliance Supplement applicable to each of its major federal programs for the purpose of expressing an opinion on City of Carlsbad's compliance with those requirements. While our audit will provide a reasonable basis for our opinion, it will not provide a legal determination on City of Carlsbad's compliance with those requirements. We gave significant consideration to nonaudit services, namely, the financial statement preparation and preparation of the schedule of expenditures of federal awards, which may reasonably be thought to bear on independence, in reaching the conclusion that independence has not been impaired. Generally accepted accounting principles provide for certain required supplementary information (RSI) to supplement the basic financial statements. Our responsibility with respect to the management's discussion and analysis, the general fund and major special revenue fund budgetary schedules and required pension www.lslcpas.com ~ P ... ··r,·,.-m'"'"e,.G __ ,.1lobal 1 //;•.,--.,,..,,.,.,,,.,,.,", ~ I m:.f1f.-.•(l•1,//1,1J tt,11,· 203 N Brea Blvd, Suite 203 I 24422 Ave111da de la Carlota, Suite 275 I 1611 E Fourth Slleet, Suite 200 I 2151 River Plaza Dr. Suite 150 I 21 waterway Avenue, Suite 30089 Brea, CA 92821 Laguna Hills CA 92653 Santa Ana, CA 92701 Sacramento CA 95833 The Woodlands, TX 77380 (714) 672-0022 (949) 829-8299 (714) 569-1000 (916) 503-9691 (936) 828-4587 Ls~ .... •••• •• Page 2 and other post-employment benefits (OPEB) schedules, which supplement the basic financial statements, is to apply certain limited procedures in accordance with generally accepted auditing standards. However, the RSI will not be audited and, because the limited procedures do not provide us with sufficient appropriate evidence to express an opinion or provide any assurance, we will not express an opinion or provide any assurance on the RSI. We have been engaged to report on t h e combining and individual fund statements and schedules and the schedule of expenditures of federal awards, which supplement the basic financial statements, but are not RSI. Our responsibility for this supplementary information, as described by professional standards, is to evaluate the presentation of the supplementary information in relation to the financial statements as a whole and to report on whether the supplementary information is fairly stated, in all material respects, in relation to the financial statements as a whole. We have not been engaged to report on the introductory section and statistical section of the Annual Comprehensive Financial Report, which accompany the financial statements but are not RSI. Our responsibility with respect to thi.s other information in documents containing the audited financial statements and auditor's report does not extend beyond the financial information identified in the report. We have no responsibility for determining whether this other information is properly stated. This other information will not be audited, and we will not express an opinion or provide any assurance on it. The expectation is we will be provided the final version of all documents comprising the annual report, including other information, prior to the date of the auditor's report so that required audit procedures can be completed prior to the issuance of the auditor's report. If obtaining the final version of these documents is not possible prior to the date of the auditor's report, that the documents will be provided as soon as practicable, and that the entity will not issue the annual report prior to providing them to the auditor. The potential implications of providing the documents after the date of the auditor's report, including any actions that may be necessary in the event the auditor concludes that there is a material misstatement. Planned Scope, Timing of the Audit, Significant Risks, and Other An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements; therefore, our audit will involve judgment about the number of transactions to be examined and the areas to be tested. Our audit will include obtaining an understanding of the entity and its environment, including internal control, sufficient to assess the risks of material misstatement of the financial statements and to design the nature, timing, and extent of further audit procedures. Material misstatements may result from (1) errors, (2) fraudulent financial reporting, (3) misappropriation of assets, or (4) violations of laws or governmental regulations that are attributable to the entity or to acts by management or employees acting on behalf of the entity. We will generally communicate our significant findings at the conclusion of the audit. However, some matters could be communicated sooner, particularly if significant difficulties are encountered during the audit where assistance is needed to overcome the difficulties or if the difficulties may lead to a modified opinion. We will also communicate any internal control related matters that are required to be communicated under professional standards. A risk assessment is performed as part of our audit planning to design the nature, timing, and extent of further audit procedures. We have not concluded our risk assessment for the year ended June 30, 2023, as of the date of this communication, and additional risks may be identified. The risks of improper revenue recognition due to fraud and management override of internal controls are always considered to be significant risks of material misstatement in an audit according to professional auditing standards and therefore must be considered in our audit plan and approach. Ls~ .... •••• •• Page 3 We expect to begin our audit on approximately May 8, 2023 and issue our report on approximately November 15, 2023. Bryan Gruber, CPA, and Ryan Domino, CPA, are the engagement partners and are responsible for supervising the engagement and signing the report or authorizing another individual to sign it. This information is intended solely for the use of the Honorable Mayor, and the Members of the City Council and management of City of Carlsbad and is not intended to be, and should not be, used by anyone other than these specified parties. Very truly yours,