The City's independent auditor, Vavrinek, Trine, Day & Co., LLP (VTD), has completed its audit of the City's financial statements for Fiscal Year ended June 30, 2017. VTD has issued an unmodified opinion on the City's CAFR, which means the City's financial statements are free of material misstatements; are in accordance with Generally Accepted Accounting Principles; and fairly present both the financial position and the results of operations for the year ended June 30, 2017. Also included are the Independent Auditors' Report on Internal Control Over Financial Reporting and on Compliance and Other Matters based on an Audit of the Financial Statements Performed in Accordance with Government Auditing Standards and the Audit Communication Letter, both dated May 31, 2018. As requested by City Council, these letters are now a part of the CAFR and can be found beginning on page 163.
Statement on Auditing Standards (SAS) 114 Report (Audit Communication Letter,CAFR page 171)
Statement on Auditing Standards (SAS) 114 was issued by the American Institute of Certified Public Accountants (AICPA) to establish a two-way communication between the independent auditors and those charged with governance (i.e. City Council). SAS 114 requires that the City's auditor communicate, either orally or in writing, certain information to an audit committee or another designated party that performs oversight of the financial reporting and auditing process. The City's Finance Committee has been identified by the City Council to receive and review the report of the annual audit from the City's independent auditor and to review and make recommendations to the City Council to receive and file the report. The Audit Communication Letter did not identify any disagreements with management.
The Audit Communication Letter identified difficulties in completing the audit due to clarifications and additional information requested by the auditor and the auditor's time to review the information provided related to the accounting treament for the City's acquisition of water rights and preferred stock (Class "A" shares) with California Domestic Water Company (CDWC). Additionally, material misstatements were detected as a result of audit procedures and corrected. These items included the recording of completed projects from construction in progress to capital assets, the annual adjustment for the City's net pension liability and the market value adjustment on the Section 115 Irrevocable Pension Trust (PARS) investment account. Additionally, the staff consulted with the auditor regarding a change to the calculation of the City's equity investment in CDWC to reflect the cosolidated entity (which included Cadway) which was implemented during the audit.
Certain items detected during the audit were identified in the City's Management Letter and have been addressed by management. The City's water rights purchased in FY 2013-14 were inadvertently excluded from the City's Capital Asset Listing. Also, beginning with the fiscal year ended June 30, 2017, the City's preferred stock (Class "A" Shares) in California Domestic Water Company, was reclassified from Other Investments to Capital Assets. Therefore, these intangible assets will also now be included in the City's Capital Assets Listing. Additionally, the City's Capital Asset Policies will be updated as applicable to include intangible assets.
The City's Information Technology (IT) division is currently updating the IT recovery plan including procedures related to the City financial system. The IT recovery plan is projected to be completed by June 30, 2019. Upon completion of the plan, the City plans to test the system restoration process to ensure proper functioning of the restoration procedures in case of a disaster.
Financial Highlights
The City's net position (assets and deferred outflows of resources less liabilities and deferred inflows) increased by $15 million, from $214 million to $228 million as of June 30, 2017. The increase in the City's net position was $11 million from the results of current operations and $4 million due to the restatement for capital asset infrastructure. The City's capital assets represent $271 million of the $410 million total assets. The City's long-term (non-current) liabilities of $179 million primarily include $111.6 million in net pension liabilities and $57.2 million of outstanding bonds and capital leases (which was used to fund capital improvements and finance the acquisition of capital assets).
As of June 30, 2017, the General Fund's ending fund balance includes a reserve for the City's unfunded pension liabilities of $6.9 million. The Successor Agency to the Brea Redevelopment Agency financial transactions are reported as a Private Purpose Trust Fund within the Fiduciary Funds section of the CAFR. The Private Purpose Trust Fund is reporting long-term liabilities of $165.7 million of bonded obligations to be paid from future Redevelopment Property Tax (formerly tax increment). |