SR 02-28-2017 8B
Ci ty Council
Report
City Council Meeting : February 28, 2017
Agenda Item: 8.B
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To: Mayor and City Council
From: Gigi Decavalles -Hughes, Director , Finance Department, Financial Operations
Subject: Presentation of Comprehensive Annual Financial Report (CAFR) to Council
Recommended Action
Staff recommends that the City Council :
1. R ecei ve and file the City’s Comprehensive Annual Financial Report (CAFR), the
independent auditors’ unmodified report for the City’s financial stat ements for the
fiscal year ending June 30, 2016, and the A uditor’s Letter to Council; and
2. Direct staff on the futu re presentation of the CAFR to the Audit Subcommittee
and the Council.
Executive Summary
The Comprehensive Annual Financial Report (CAFR) communicates the City’s financial
condition and activity for the fiscal year en d ing June 30, 2016. Overall, the City ’s
operations show stability and steady growth, reflecting its prudent and sound
management practices.
The Statement of Net Position, similar to a balance sheet, reports total assets and
liabilities of the City. The total net position of the City for all activities was $1.5 billion.
The General Fund balance increased by $8.6 million (to $387.1 million) over the prior
year, primarily due to expenditure savings and an increase in charges for services,
sales and use tax, other tax, and license and permit rev enues. The City’s various
pension plans are approximately 75% funded with a combined unfunded long -term
actuarial liability of approximately $387 million .
The independent auditors’ unmodified report communicates that the CAFR, and audited
information wit hin, fairly present the City’s financial position for the fiscal year end ing
June 30, 2016. This audit is performed in compliance with City Charter requirements.
An attached submittal letter states that the City’s independent auditors encountered no
diff iculties , found no corrected or uncorrected misstatements , and had no
disagreements with management during the audit. An additional report on the City’s
internal control over financial reporting and compliance notes no instances of non -
compliance .
The Ci ty of Santa Monica has received a clean audit report for more than three decades
and has been awarded the Certificate of Achievement for Excellence in Financial
Reporting by the Government Finance Officers’ Association of the United States and
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Canada (GFOA ) for its CAFR for 32 consecutive years since it began participating in the
program . To make the CAFR more transparent, staff has provided an explanation for
key financial performance indicators shown in the report.
The City’s independent external audito rs, Lance, Soll & Lunghard, LLP (LSL) presented
the CAFR to the Audit Subcommittee on January 17, 2017. The Audit Subcommittee
received and filed the CAFR with a 4 -0 vote, with Subcommittee Member Pam
O’Connor absent.
Staff and the City’s external audito r have presented the CAFR as an a dministrative i tem
on the Council agenda since 2013. This was done as an alternative approach to the
Los Angeles County Civil Grand Jury’s best practice recommendation that the City
establish an audit committee t o oversee the work of the City’s auditor. In 2015, Council
established an Audit Subcommittee which includes three Councilmembers and two
members of the public and has receive d presentation s of the CAFR from the City’s
external auditor for the past two years. Consi dering this review at the Subcommittee
level, s taff is seeking the Council’s direction on whether the CAFR could be presented
to the full Council as a consent item in the future.
Background
The CAFR communicate s the City’s financial condition and activi ty in a transparent and
organized manner and in compliance with accounting and financial reporting standards
established by the Governmental Accounting Standards Board (GASB). The report
presents historical and comparative information that can be useful t o City staff , elected
officials , and external users such as debt rating agencies, businesses, other public
agencies , and the City’s residents. The most recent CAFR and over 10 years of prior
year reports are available at the City’s libraries and on the Ci ty’s Finance website at:
https://finance.smgov.net/budgets -reports .
As required by the City Charter, financial statements are prepared by the City and
audited by independent auditors . The City selec ts its independent auditor through a
competitive procurement process. The City’s current independent auditor , L SL , is in its
first year auditing the City .
The quality of the City’s work and the CAFR is measured in two ways: (1) a clean audit
report by th e independent auditors; and (2) the Certificate of Achievement for
Excellence in Financial Reporting, awarded by the Government Finance Officers’
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Association of the United States and Canada (GFOA). The attainment of the latter is
the highest form of recog nition in governmental accounting and financial reporting.
Auditors follow audit industry standards established by the American Institute of
Certified Public Accountants (AICPA). These standards require auditors to provide an
opinion on specific areas of the City’s financial statements based on observations,
inquiries, testing of transactions , and analysis.
The City’s CAFR includes the following major sections and information:
Introductory Section
Letter of Transmittal – prepared by management and used to communicate
information on areas that may have an impact on the City’s finances now and in
the future. This includes economic factors as well as budget and management
factors.
Financial Section (the main body of the CAFR for current year information)
Independent Auditors’ Report – the City’s report card on the content of the CAFR
Management’s Discussion and Analysis (MD&A) – provides an analytical
overview of the City’s financial status and results for the year
Basic Financial Statements – reports fi nances at a point in time (assets -
liabilities) and throughout the year (revenues - expenditures), and cash flows
o City -Wide Statements – overview of financial information including all of
the City’s operations by financial activity
o Fund Financial State ments – a detailed look at funds, reporting the
Balance Sheet and Statement of Revenues, Expendit ures and Changes in
Fund Balance
o Notes to the Financial Statements (Notes) – a narrative explanation that
accompanies the Basic Financial Statements
Required Supplementary and Supplementary Information Sections
Pension Information – schedule of changes in the pension liability and related
ratios; schedule of contributions by plan
OPEB Information – three years of Other Post -Employme nt Benefits funding
informa tion
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Budget to Actual Comparisons – for all governmental funds with a legally
adopted budget
A breakout of individual funds – for funds that were presented in a cumulative
manner in the Financial Section
Statistical Section (current and historical infor mation – up to 10 years)
Financial Trends
Revenue Capacity Information
Debt Capacity Information
Demographic and Economic Information
Operating Information
Discussion
The attached CAFR for FY 2015 -16 has received an unmodified, or clean, opinion by
LSL . An unmodified opinion communicates that the financial statements are fairly
presented and that the information used in the report is reliable. In their written
communications to Council, the auditors note that they encountered no significant
difficulti es with management in performing or completing the audit. Additionally, they
found no correcte d or uncorrected misstatements.
The CAFR was presented to the Audit Subcommittee of the City Council on January 17,
2017 by LSL. Subcommittee members were give n an opportunity to review the report
and ask questions of the external auditors. Among the topics discussed were the
required communication and responsibilities of the external audit firm, significant
changes to accounting policies as prescribed by GASB, the function of significant
accounting estimates, and prior period adjustments. The Audit Subcommittee received
and filed the CAFR with a 4 -0 vote, with Committee Member Pam O’Connor absent.
The City of Santa Monica has received a clean, unqualified/unm odified audit report and
the GFOA Award for 32 years , since the City first participated in the GFOA program in
FY 1983 -84.
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Overall, the City’s CAFR shows that City finances are stable. The following is an
explanation of some key indicators reported in the CAFR.
General Fund Balance
The most notable measure of a City’s financial health is the General Fund balance. As
presented in the Basic Financial Statements, the City’s General Fund assets exceeded
liabilities by $387.1 million as of June 30, 2016. Thi s balance is comprised of a number
of categories, as follows:
$39.4 million nonspendable, restricted or committed resources that are required
for specific purposes according to legal/contractual agreements or by ordinance
or resolution of the City Council;
$280.3 million assigned funds set aside for specific purposes based on budget
priorities (i.e., continuing and future capital projects; project financing equity;
expenditure control budget; and pollution remediation); and
$67.3 million in unassigned fun ds as follows:
o $53.5 million rainy day contingency (15% of annual operating and capital
expenditure budget);
o $9.7 million economic uncertainty reserve to mitigate potential revenue
losses;
o $0.8 million unrealized gain;
o $3.3 million other unassigned fun d balance.
The strong fund balance and rainy day and economic uncertainty reserves play a key
role in Santa Monica’s AAA general obligation bond rating. In addition to being an
indicator of very strong financial health, the high bond rating allows the Ci ty to pursue
lower cost financing structures.
The General Fund balance increased by $8.6 million over the prior year , primarily due to
expenditure savings and an increase in charges for services, sales and use tax, other
tax, and license and permit revenu es.
Citywide Net Position
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The Statement of Net Position, similar to a balance sheet, reports total assets and
liabilities of the City as of June 30, 2016. The total net position of the City for all
activities was $1.5 billion. Net position is broken out into three categories: capital,
restricted, and unrestricted.
Net Capital Position ($1.2 billion)
Capital assets include land, buildings, improvements, intangibles, infrastructure and
utility systems, and construction in progress. Intangible assets repr esent rights of use
for items such as software and payments for Santa Monica’s cost of improvements to
the City of Los Angeles sewage treatment system. Some notable capital projects that
were underway as of June 30, 2016 are:
California Incline and Pedest rian Overpass
Expo Light Rail Phase 2
Ishihara Park
City Services Building
Bus stop improvements
Enterprise Resource Planning system
Restricted Net Position ($209.3 million)
These assets are subject to agreements with creditors, developers, grantors, or l aws or
regulations of other governments. Approximately 46% of this amount is restricted for
affordable housing and committed to various projects, 11% is restricted per federal,
state and other grant regulations, 26% is restricted according to development
agreement terms, and the remaining amount is restricted for the Cemetery’s trust fund,
debt service reserve, and other grant and legislative constraints.
Unrestricted Net Position ($150.7 million)
This represents the balance of net position that is neithe r part of capital assets nor
restricted. Healthy capital and oper ating reserves in the business -type activities support
rate stabilization and recovery strategies for the City’s many activities.
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Long Term Debt and Pension Liabilities
The primary source o f long term debt is in the form of bonds issued by the City. $12.4
million in debt service payments were made on one general obligation bond for the Main
Library construction, five General Fund revenue bonds for various parking structures
and the Public S afety Facility, and one revenue bond to fund a proportionate share of
capital improvements of the City of Los Angeles Hyperion wastewater treatment facility.
In July 2015, the City issued $26.4 million in bonds to refund the 2004 Public Financing
Authorit y Civic Parking Structure bonds. The City recognized an economic gain of $4.4
million on the transaction. More information on long term debt can be found in Note 9,
page 77 of the CAFR.
For greater transparency, beginning in FY 2014 -15, new GASB pronoun cements for
pension accounting require that entities report unfunded liability in the financial
statements rather than in the footnotes . These GASB pronouncements do not affect
either the amount of contributions a government makes to pension plans or t he total net
pension liability , which is still actuarially determined . Total net pension liability , or
unfunded liability, is based on projected future benefit payments attributed to the current
and past employees’ service , less the assets accumulated to pay those liabilities. As
shown on pages 23 and 119 of the CAFR, the City has a combined unfunded actuarial
liability of approximately $387 million: total pension liability of approximately $1.5 billion
with plan assets of approximately $1.2 billion. The Ci ty’s various pension plans are thus
approximately 75% funded. The City’s annual payments include a portion to fund
current benefits as well as an amount to pay down the unfunded liability. Annual
actuarial valuations provide the City with the amount of t he contribution that must be
paid annually in to the plan to ensure that the current unfunded liability is paid off over
the following 30 years. A detailed explanation of the Employee Benefits Programs
including detailed pension information by plan is incl uded in the Notes section (see Note
16, pages 92 through 104) and the Required Supplementary Information (pages 119
and 120).
State -mandated pension reform and Council -approved cost saving measures mitigate
pension cost increases. Furthermore, employees are currently paying approximately
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25% of the total pension cost, and additional increases to public safety employee
pension contributions are continuing in FY 2016 -17 based on collective bargaining
agreements. Through Council action, the City has paid $3 1.3 million toward the City’s
unfunded pension liability through the end of FY 2015 -16. The City will continue its
Council –adopted policy to pay down at least $1 million of its unfunded liability every
year.
Repayment of Successor Agency Loans
As part of the process of winding down the former Redevelopment Agency, the
Department of Finance approved repayment of the three loans from the Successor
Agency under the rules encompassed in Senate Bill (SB)107. The City expects to
receive payments totaling $70 m illion over a period of 8 years which ha ve been
committed to low and moderate income housing.
Cash and Investments
The CAFR also includes detailed information on the City’s cash and investments. As of
June 30, 2016, the City had $783 million in total cas h and investments, all of which are
in the form of investments authorized by the California Government Code and the City’s
investment policy or in compliance with bond indenture agreements. More information
on cash and investments is found in Note 5, page 58 of the CAFR.
CAFR Presentation to Council
Staff and the City’s external auditor have presented the CAFR as an administrative item
on the Council agenda since 2013. This was done as an alternative approach to the
Los Angeles County Civil Grand Jury’s best practice recommendation that the City
establish an audit committee to oversee the work of the City’s auditor. In 2015, Council
established an Audit Subcommittee , which includes three Councilmembers and two
members of the public with finance and accou nting expertise. The Subcommittee has
received presentations of the CAFR from the City’s external auditor for the past two
years. I n recognition of the Audit Subcommittee’s prior review of the document, staff is
seeking the Council’s direction on whether to continue the process of a CAFR and
independent auditor presentation to both the Audit Subcommittee and the full Council,
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or whether the CAFR may be presented to the Council as a consent item in future
years.
Financial Impacts and Budget Actions
There is no immediate financial impact or budget action necessary as a result of the
recommended action.
Prepared By: Stephanie Manglaras, Accounting Manager
Approved
Forwarded to Council
Attachments:
A. Comprehensive Annual Financial Report for the Year Ended June 30, 2016
B. Audit Communication Letter
C. Auditor's Report on Internal Controls
December 21, 2016
To the Honorable Mayor and Members of the City Council
City of Santa Monica, California
We have audited the financial statements of the gove rnmental activities, the business-type activities, each
major fund, and the aggregate remaining fund informat ion of the City of Santa Monica, California
(the City), for the year ended June 30, 2016. Professional standards requ ire that we provide you with
information about our responsibilities under generally accepted auditing standards and
Government Auditing Standards , as well as certain information related to the planned scope and timing
of our audit. We have communicated such informati on during our meeting with the Audit Subcommittee
on April 19, 2016. Professional standards also requi re that we communicate to you the following
information related to our audit.
Significant 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 the notes to the financial statements. Statement of
Governmental Accounting St andards (GASB Statement) No. 72 - Fair Value Measurement and
Application was implemented in fiscal year 2015-16. The e ffect of this new accounting standard is
discussed in Note 1 to the basic financial statements.
As described in Note 20 to the basic financial st atements, the State of Calif ornia passed Senate Bill 107
(SB 107) during fiscal year 2015-16, which changed the allowable interest rates on loans between the
City and Successor Agency of the Former Redevelopm ent Agency. Additionally, the principal balance of
one of the loans was revised upwards based on a re view performed by the California Department of
Finance and interpretation of SB107. The City rec ognized an extraordinary gain of $324,614 as a result
of this upwards valuation in principal, and a net extr aordinary loss of $8,107,400 as a result of the change
in interest rate computation. The Successor Ag ency of the Former Development Agency recognized
reciprocal losses and gains. These items are report ed as extraordinary items because of their infrequent
and unusual nature, and because the effect of the c hange in State law was outside of the control of City
management.
As also described in Note 20 to the basic financial statements, various events oc curred during fiscal year
2015-16 which resulted in the reporting of special it ems. These special items are categorized as such
because of their infrequent and unusual nature, but unlike extraordinary item s, the effect of special items
is within the control of City management. The City ’s General Fund and Community Development Block
Grant Fund (collectively referred to as Governmental Activities) forgave notes from both the Airport Fund
and the Successor Agency of the Form er Redevelopment Agency. The effe ct of the forgiveness of these
loans resulted in the City’s Governmental Activities reporting a loss of $11,893,876, with the Airport Fund
recognizing a gain of $2,136,023 and the Successor Agency of the Former Redevelopment Agency
recognizing a gain of $9,757,853. The Big Blue Bus F und (BBB) also sold land during fiscal year 2015-16
that was historically valued on BBB’s books at $11,468,462 for a sale price of $19,950,000, resulting in a
special gain of $8,481,538 reported by BBB.
203 N. Brea Blvd., Suite 203 Brea, CA 92821 Phone: 714.672.0022
An Association of Independent A cco unting Firms
To the Honorable Mayor and Members of the City Council
City of Santa Monica, California
As described in Note 9 to the basic financial st atements, on July 9, 2015, the Santa Monica
Public Financing Authority issued $26,360,000 of Santa Monica Public Financing Authority Lease
Revenue Refunding Bonds Series 2015, bearing interest fr om 3.00% to 5.00% with a final maturity of July
1, 2033. The bonds were issued to refund the Santa M onica Public Financing Authority Lease Revenue
Series 2004 (Civic Center Parking Project) Bonds. The aggregate difference in debt service between the
refunding debt and the refunded debt is $9.0 million and resulted in an economic gain of $4.4 million. The
reacquisition price exceeded the net carry value of the old debt by $70.0 thousand. The amount is being
netted against the new debt and amortized over the rema ining life of the new debt, which is equal to the
life of the refunded debt.
We noted no transactions entered into by the City during the year for which there is a lack of authoritative
guidance or consensus. All significant transactio ns 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 account ing estimates are particularly sens itive because of their significance
to the financial statements and because of the possibilit y that future events affecting them may differ
significantly from those expected. The most sensitive estimates affecting the City’s financial statements
were:
Management’s estimate of the net pension liability and the net other post-employment
benefits (OPEB) obligation is based on actuarial standards utilized in the relating
actuarial reports. We evaluated the key fact ors and assumptions used to develop the net
pension liability and net OPEB obligation in determi ning that it is reasonable in relation to
the financial statements taken as a whole.
The disclosure of Pollution Remediation in Note 4 to the basic financial statements
discusses the City’s obligation for pollution remediation costs. Multiple methods for
estimating the value of the obligation ar e available under GASB Statement No. 49 –
Accounting and Financial Reporting for Pollution Remediation Obligations , including
measuring the obligation at current value, ex pected total outlays, or expected future cash
flow. The City has elected to measure the liability using the expected cash flow method,
and includes an additional 10% contingency for unforeseen costs. As of June 30, 2016,
the City has estimated that its total obli gation for pollution remediation is $121,120,931,
with $12,897,596 of that amount expected to be paid out during fiscal year 2016-17.
Certain financial statement disclosures are particularly sensitive because of their significance to financial
statement users. The most sensitive disclosure(s ) affecting the financial statements was (were):
As described in Note 16 to the basic financi al statements, the ci ty has a defined benefit
pension plan which is part of the Public Agency portion of the California Public
Employees Retirement System (CalPER S), an agent multiple employer plan
administered by CalPERS. The City report ed a net pension liability of $386,760,127 as
compared to $367,309,150 in the prior year. Th is liability represents the net difference
between the pension plan assets and the total pension liability.
Additionally, the City provides other post-employment benefits (OPEB) based on
agreements with various bargaining units. The City reported $10,431,582 in net OPEB
obligation as compared to $10,323,773 in the pr ior year. This represents the balance of
the unfunded annual required contributions. Beginni ng in fiscal year 2017-18, the City will
be required to report the unfunded actuarial ac crued liability on the face of the financial
statements which as of July 1, 2015, t he latest valuation date, was $27,848,131.
To the Honorable Mayor and Members of the City Council
City of Santa Monica, California
The financial statement disclosures are neutral, consistent, and clear.
Difficulties Encountered in Performing the Audit
We encountered no significant difficulties in deali ng with management in performing and completing our
audit.
Corrected and Uncorrected Misstatements
Professional standards require us to accumulate al l known and likely misstatements identified during the
audit, other than those that are trivial, and communica te them to the appropriate level of management. No
misstatements were found.
Disagreements with Management
For purposes of this letter, a disagreement with m anagement is a financial accounting, reporting, or
auditing matter, whether or not resolved to our satisf action, that could be significant to the financial
statements or the auditor’s report. We are pleased to report that no su ch 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 December 21, 2016.
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 City’s financial st atements or a determination of the type of auditor’s
opinion that may be expressed on th ose statements, our professional standards require the consulting
accountant to check with us to determine that the c onsultant 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 ret ention as the City’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
We applied certain limited procedures to the manag ement’s discussion and analysis, the schedules of
revenues, expenditures and changes in fund balance – budget and actual for the general fund, special
revenue source fund, and the low and moderate income housing assets fund, the schedule of changes in
net pension liability and related ratio, the sche dule of contributions – pension plans, and the
OPEB funding information, which are required suppl ementary information (RSI ) that supplements the
basic financial statements. Our procedures consiste d of inquiries of management regarding the methods
of preparing the information and comparing the inform ation for consistency with management’s responses
to our inquiries, the basic financial statements, a nd other knowledge we obtained during our audit of the
basic financial statements. We did not audit t he RSI and do not express an opinion or provide any
assurance on the RSI.
To the Honorable Mayor and Members of the City Council
City of Santa Monica, California
We were engaged to report on the combining and individual fund statements and schedules, which
accompany the financial statements but are not RSI. With respect to this supplementary information, 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.
New Auditing Standard No. 130
This new auditing standard is effective for financial periods ending on or after December 15, 2016; for
most California municipalities it is effective for the period July 1, 2016 through June 30, 2017 and future
periods thereafter. The standard allows CPA firm s to issue an opinion on the financial statements
conformity with generally accepted accounting prin ciples, as well as an opinion on the operating
effectiveness of internal controls over financial r eporting through an integrated audit. This standard does
not change the objectives of a financial statem ent audit, it only enhances the value and scope of a
financial statement audit and increases the level of assurance provided by CPA firms on financial
controls. Municipalities should look to perform an integrated audit for more assurance on the operating
effectiveness of internal controls over financial reporting.
New Accounting Standards
The following new Governmental Accounting Standards Board (GASB) pronouncements were effective
for fiscal year 2015-2016 audit:
GASB Statement No. 72, Fair Value Measurement and Application.
GASB Statement No. 76, The Hierarchy of Generally accepted Accounting Principles for State and
Local Governments.
GASB Statement No. 79, Certain External Investment Pools and Pool Participants.
The following Governmental Accounting Standards B oard (GASB) pronouncements are effective in the
following fiscal year audit and should be reviewed for proper implementation by management:
Fiscal year 2016-2017
GASB Statement No. 73, Accounting and Financial Reporting for Pensions and Related Assets
That Are Not within the Scope of GASB St atement No. 68, and Amendments to Certain
Provisions of GASB Statement Nos. 67 and 68.
GASB Statement No. 74, Financial Reporting for Postemploy ment Benefit Plans Other Than
Pension Plans.
GASB Statement No. 77, Tax Abatement Disclosures.
GASB Statement No. 78, Pensions Provided through Certain Multiple-Employer Defined Benefit
Pension Plans.
GASB Statement No. 80, Blending Requirements for Certain Component Units-an amendment of
GASB Statement No. 14.
To the Honorable Mayor and Me mbers of the City Council
City of Santa Monica, California
GASB Statement No. 82, Pension Issues an Amendment of GASB Statements No. 67, No. 68,
and No. 73.
Fiscal year 2017-2018
GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other
Than Pensions.
GASB Statement No. 81, Irrevocable Split Interest Agreements.
Restriction on Use
This information is intended solely for the use of the City Council and ma nagement of the City of
Santa Monica, California, and is not intended to be, and should not be, used by anyone other than these
specified parties.
Very truly yours,
Brea, California
INDEPENDENT AUDITORS’ REPO RT ON INTERNAL CONTROL
OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS
BASED ON AN AUDIT OF FINANCIAL ST ATEMENTS PERFORMED IN ACCORDANCE
WITH GOVERNMENT AUDITING STANDARDS
To the Honorable Mayor and Members of the City Council
City of Santa Monica, California
We have audited, in accordance with the auditing st andards 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, the financial statements of the governmental
activities, the business-type activiti es, each major fund, and the aggregate remaining fund information of
the City of Santa Monica, California (the City), as of and for the year ended June 30, 2016, and the related
notes to the financial statements, which collectively comprise the City ’s basic financial statements, and
have issued our report thereon dated December 21, 2016.
Internal Control over Financial Reporting
In planning and performing our audit of the financial stat ements, we considered the City’s internal control
over financial reporting (internal control) to deter mine the audit procedures that are appropriate in the
circumstances for the purpose of expressing our opinions on the financ ial statements, but not for the
purpose of expressing an opinion on the effectiveness of t he City’s internal control. Accordingly, we do not
express an opinion on the effectivene ss of the City’s internal control.
A deficiency in internal control exists when the design or operation of a control does not allow management
or employees, in the normal course of performing t heir assigned functions, to prevent, or detect and correct,
misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in
internal control, such th at there is a reasonable possibility that a material misstatement of the entity’s
financial statements will not be prevented, or detected and corrected on a timely basis. A significant
deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a
material weakness, yet important enough to meri t attention by those charged with governance.
Our consideration of internal control was for the limited purpose described in the first paragraph of this
section and was not designed to identify all deficienc ies in internal control that might be material
weaknesses or, significant deficiencies. Given these limitations, during our audit we did not identify any
deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses
may exist that have not been identified.
Compliance and Other Matters
As part of obtaining reasonable assurance about w hether the City’s financial statements are free from
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. Howeve r, 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 .
203 N. Brea Blvd., Suite 203 Brea, CA 92821 Phone: 714.672.0022
An Association of Independent A cco unting Firms
To the Honorable Mayor and Me mbers of the City Council
City of Santa Monica, California
Purpose of this Report
The purpose of this report is solely to describe the scope of our testing of internal control and compliance
and the results of that testi ng, and not to provide an opinion on the effe ctiveness of the City’s internal control
or on compliance. This report is an integral part of an audit performed in accordance with
Government Auditing Standards in considering the City’s internal control and compliance. Accordingly,
this communication is not suitable for any other purpose.
Brea, California
December 21, 2016