SR-04-23-2013-8BTo: Mayor and City Council
From: Gigi Decavalles- Hughes, Director of Finance
Subject: Presentation of Independent Auditor Report
Recommended Action
Staff recommends that the City Council receive and file the independent auditors'
unqualified audit report for the City's financial statements for the fiscal year ended June
30, 2012 and the attached Auditor's Letter to Council.
Executive Summary
As required by the City Charter, independent auditors audit the City's financia
statements each fiscal year. The City's financial statements for the fiscal year ended
June 30, 2012, with the independent auditors' unqualified opinion, are embodied in the
City's Comprehensive Annual Financial Report (CAFR). The CAFR is available at the
audit findings and other matters is e also submitted with this report uditors communicating
Discussion
As required by the City Charter, financial statements are prepared by the City and
audited by independent auditors. The City's independent auditors, Macias Gini
O'Connell, LLP, have audited the financial statements for the fiscal year ended June 30,
2012, issued an unqualified opinion, and have provided a letter summarizing their audit
findings and other matters, a required communication under generally accepted auditing
standards. .
with an unqualified opinion, the auditors have neither qualifications nor reservations
about the financial statements as presented. The auditors' formal opinion and
accompanying financial statements are embodied in the City's CAFR, which is now
accessible at the City's libraries and on the City's Finance web site as well as attached
to this report.
1
In the letter to Council, auditors have identified sensitive disclosures related to the
dissolution of the City's Redevelopment Agency and have summarized audit differences
and recommended reclassifications to the financial statements. The uncorrected
recommended reclassifications were proposed for presentation only and have no impact
on the financial condition of City funds.
Jim Godsey, audit partner from Macias Gini and O'Connell, LLC, will be available during
the meeting on April 23, 2013, to answer any questions.
Financial Impacts & Budget Actions
There is no budget/financial impact to receive and file this report.
Prepared by: Candace Tysdal, Financial Operations Manager
Approved:
daA
Gigi - - ,..
Director of
Forwarded to Council:
Rod Gould
City Manager
Attachments:
A. Auditor's Letter to Council
B. Comprehensive Annual Financial Report for the year ended June 30, 2012
2
We have audited the financial statements of the governmental activities, the business-type activities, each Seattle
major fund, and the aggregate remaining fund information of the City of Santa Monica (City) for the year
ended June 30, 2012. Professional standards require that we provide you with information about our
nder generally accepted auditing standards, Government Auditing Standards, and OMB
responsibilities n related to the planned scope and timing of our audit. We
Circular Aities as well as certain informatio
have that communicated
communicate information you the following nfomation relat dOto oar audit.
Professional standards also
Si nif rMt Audit Findings
Qualitative Aspects of Accounting Practices
Management is responsible for the selection and use of appropriate accounting policies. The significant
accounting policies used by the City are described in Note I to the financial statements. No new
accounting policies were adopted and the application of existing policies was not changed during 2012.
We noted no transactions entered into by the governmental unit during the year for which there is a lack
Of authoritative guidance or consensus. All significant transactions have been recognized in the financial
statements in the proper period.
Accounting estimates are an integral part of the financial statements prepared by management and are
based on management's knowledge and experience about past and current events and assumptions about
future events. Certain accounting estimates are particularly sensitive because of their significance to the
financial statements and because of the possibility that future events affecting them may differ
significantly from those expected. The most sensitive estimates affecting the governmental activities' and
business -type activities' financial statements were:
Management's estimate of depreciation is based on the estimated useful lives of capital
assets. We evaluated the expense in determining thate t sareaso able n relation to the financialstatements taken as
a whole.
Management's estimate of the claims payable is based on reports prepared by third party
administrators, actuarial valuations, and the reports prepared by management. We
evaluated the key factors and assumptions used to develop the claims payable in
determining that it is reasonable in relation to the financial statements taken as a whole.
ost
Management's estimates of the net pension obligation and adm nher pons and actuarial
benefits obligation is based on reports prepared by third party
valuations. We evaluated the key factors and assumptions used to develop the net pension
obligation and the other post - employment benefits obligation in determining that they are
reasonable in relation to the financial statements taken as a whole.
www.mgocpa.com
ATTACHMENT
Los eA
777 S. Figueroa Street, Suite 2500
Los Angeles, CA 90017
e>r °fied Public Accountants.
213.408.8700
Sacramento
Walnut Creek
Oakland
April 23, 2013
Century City
To the Honorable City Council
Newport Beach
City of Santa Monica, California
San Diego
We have audited the financial statements of the governmental activities, the business-type activities, each Seattle
major fund, and the aggregate remaining fund information of the City of Santa Monica (City) for the year
ended June 30, 2012. Professional standards require that we provide you with information about our
nder generally accepted auditing standards, Government Auditing Standards, and OMB
responsibilities n related to the planned scope and timing of our audit. We
Circular Aities as well as certain informatio
have that communicated
communicate information you the following nfomation relat dOto oar audit.
Professional standards also
Si nif rMt Audit Findings
Qualitative Aspects of Accounting Practices
Management is responsible for the selection and use of appropriate accounting policies. The significant
accounting policies used by the City are described in Note I to the financial statements. No new
accounting policies were adopted and the application of existing policies was not changed during 2012.
We noted no transactions entered into by the governmental unit during the year for which there is a lack
Of authoritative guidance or consensus. All significant transactions have been recognized in the financial
statements in the proper period.
Accounting estimates are an integral part of the financial statements prepared by management and are
based on management's knowledge and experience about past and current events and assumptions about
future events. Certain accounting estimates are particularly sensitive because of their significance to the
financial statements and because of the possibility that future events affecting them may differ
significantly from those expected. The most sensitive estimates affecting the governmental activities' and
business -type activities' financial statements were:
Management's estimate of depreciation is based on the estimated useful lives of capital
assets. We evaluated the expense in determining thate t sareaso able n relation to the financialstatements taken as
a whole.
Management's estimate of the claims payable is based on reports prepared by third party
administrators, actuarial valuations, and the reports prepared by management. We
evaluated the key factors and assumptions used to develop the claims payable in
determining that it is reasonable in relation to the financial statements taken as a whole.
ost
Management's estimates of the net pension obligation and adm nher pons and actuarial
benefits obligation is based on reports prepared by third party
valuations. We evaluated the key factors and assumptions used to develop the net pension
obligation and the other post - employment benefits obligation in determining that they are
reasonable in relation to the financial statements taken as a whole.
www.mgocpa.com
Management's estimate of the pollution remediation obligation is based on expected
outlays to be incurred to settle those liabilities. We evaluated the key factors and
assumptions used to develop the pollution remediation obligation in determining that it is
reasonable in relation to the financial statements taken as a whole.
Certain financial statement disclosures are particularly sensitive because of their significance to financial
statement users. The most sensitive disclosures affecting the financial statements were:
The disclosure in Note 17 to the financial statements, which discusses the California State
Legislature's enacted legislation that dissolved redevelopment agencies in the State of
California as of February 1, 2012. On February 1, 2012, the City, as the Successor
Agency to the City of Santa Monica Redevelopment Agency, became responsible for the
overseeing of the dissolution process and the wind down of redevelopment activity.
The disclosure in Note 17 to the financial statements, which discusses the Moody's
downgrade of all California redevelopment Tax Allocation Bonds within the State,
including the City of Santa Monica Redevelopment Agency's (Former Agency)
Earthquake Redevelopment Bonds Series 2006. This downgrade triggered an event of
default in two of the Former Agency's loans, making them subject to call. The lender on
one of the loans has agreed to forbear on exercising default remedies at least through
April 2013, at which time the status of this loan will be evaluated for continuing
forbearance. The lender on the other loan has taken no action.
The disclosure in Note 18 to the financial statements, which discusses the State of
California Department of Finance's (DOF) determination regarding the Due Diligence
Review required under redevelopment dissolution law. The Successor Agency does not
agree with the entire amount included in the DOF's determination. Due to the inherent
uncertainties involved in the application of the redevelopment dissolution law,
management cannot presently determine the ultimate outcome of this issue.
The financial statement disclosures are neutral, consistent, and clear.
Difficulties Encountered in Performing the Audit
We encountered no significant difficulties in dealing with management in performing and completing our
audit.
Corrected and Uncorrected Misstatements
Professional standards require us to accumulate all known and likely misstatements identified
during the audit, other than those that are clearly trivial, and communicate them to the appropriate
level of management. The attached schedule summarizes audit differences and reclassifications
recommended for the financial statements. Management has determined that the effects of these
differences are immaterial, both individually and in the aggregate, to the financial statements
taken as a whole.
The uncorrected recommended reclassifications in the attached schedule were proposed for
management consideration. There is no impact to the financial condition of City funds. They are
proposed for presentation purposes only.
2
Disagreements with Management
For purposes of this letter, a disagreement with management is a financial accounting, reporting, or
auditing matter, whether or not resolved to our satisfaction, that could be significant to the financial
statements or the auditor's report. We are pleased to report that no such disagreements arose during the
course of our audit.
Management Representations
We have requested certain representations from management that are included in the management
representation letter dated January 31, 2013, as updated through February 25, 2013.
Management Consultations with Other Independent Accountants
In some cases, management may decide to consult with other accountants about auditing and accounting
matters, similar to obtaining a "second opinion" on certain situations. If a consultation involves
application of an accounting principle to the governmental unit's financial statements or a determination
of the type of auditor's opinion that may be expressed on those statements, our professional standards
require the consulting accountant to check with us to determine that the consultant has all the relevant
facts. To our knowledge, there were no such consultations with other accountants.
Other Audit Findings or Issues
We generally discuss a variety of matters, including the application of accounting principles and auditing
standards, with management each year prior to retention as the governmental unit's auditors. However,
these discussions occurred in the normal course of our professional relationship and our responses were
not a condition to our retention.
Other Matters
With respect to the supplementary information accompanying the financial statements, we made certain
inquiries of management and evaluated the form, content, and methods of preparing the information to
determine that the information complies with accounting principles generally accepted in the United
States of America, the method of preparing it has not changed from the prior period, and the information
is appropriate and complete in relation to our audit of the financial statements. We compared and
reconciled the supplementary' information to the underlying accounting records used to prepare the
financial statements or to the financial statements themselves.
This information is intended solely for the use of City Council and management of the City of Santa
Monica and is not intended to be, and should not be, used by anyone other than these specified parties.
Very truly yours,
Los Angeles, California
CITY OF SANTA MONICA
Audit Difference and Reclassification Summary
June 30, 2012
Recommended
Journal Entry
DESCRIPTION I Debit I Credit
GOVERNMENTAL ACTIVITIES/ BUSINESS -TYPE ACTIVITIES
Net Pension Asset- Gmernmental Activities
$ 15,218,168
Net Pension Asset- Business -type Actvities
4,781,832
Expenses - General Services - Governmental Actvites
7,589,096
Expenses - Business-type Acdvities
2,410,904
Unrestricted Net Assets- Govermnental Activities
7,629,072
Un,mieted Net Assets - Business -type Activities
2,370,928
To record a net persinn asses for the dlsa On, nmy payment made m PRRS in FYI a,,dFY12
Item No. 8 -13
Attachment B
April 23, 2013
• • ' '
This document is available online at:
http://Www.smciov.net/departments/clerk/agendas.aspx
A hard copy of this document is also available for
public review at the City Clerk's Office and the Main
Library.
Item No. 8 -13
Attachment B
April 23, 2013