TO: Honorable Mayor and Members of the City Council
THRU: Tom Kisela, City Manager
FROM: Trang Nguyen, Finance Director
1. Subject
title
Annual Comprehensive Financial Report and Related Financial Reports for the Fiscal Year ended June 30, 2023.
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2. Summary
Financial Reports and Statements provided by Lance, Soll, Lunghard, LLP, independent auditors, as a result of the annual financial audit for the fiscal year ended June 30, 2023.
3. Recommended Action
recommendation
Receive and file the following documents for the fiscal year ended June 30, 2023:
1. Annual Comprehensive Financial Report
2. Audit Communication Letter
3. Independent Accountants’ Report on Agreed-Upon Procedures Applied to the Appropriations Limit Worksheets
4. Independent Accountants’ Report on Agreed-Upon Procedures Applied to the Investment Portfolio
5. Air Pollution Reduction Fund Financial Statements and Independent Auditors’ Report
6. Independent Auditors’ Report on Internal Control Over Financial Reporting
7. Housing Successor Fund Financial Statements
8. Single Audit of Federally Assisted Grant Programs
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4. Fiscal Impact
None.
5. Strategic Plan Goals
Goal 2: Be a fiscally healthy community
a: Expend fiscal resources responsibly.
d: Effectively manage and develop City assets.
6. Discussion and Background
The Finance Department went through a transition period with a new director, no Accounting Manager, and no accountant for almost six months. Due to these extenuating circumstances, the annual audit was delayed until February 2024 and the Annual Comprehensive Financial Report (ACFR) was not issued until March 27, 2024. The staff report summarizes the audit findings and provides a brief description of the various reports for the fiscal year ended June 30, 2023.
Lance, Soll, and Lunghard, LLP (LSL) provided audit services to the City for the fiscal year ended June 30, 2023. The audit resulted in an overall “clean” audit opinion. This provides assurance that the City’s financial transactions are presented fairly and can be relied upon not only for proper reporting of past financial results in the City’s Fiscal Year (FY) 2023 Annual Comprehensive Financial Report (ACFR), but also on a go-forward basis as we craft the FY 2025 Budget. This is important given the results reflected in the ACFR include fixed assets, non-spendable assets such as inventory, and restricted fund balances such as catastrophic reserve that are not readily available to City for appropriation in operating costs, debt services, and capital infrastructure improvements.
As an integral part of their audit, LSL noted two deficiencies in internal controls, which are considered to be material weaknesses, and one material noncompliance. Their findings are as follows:
1. Failure to Accrue Liabilities. Finance agrees to this finding and has implemented close monitoring of invoices in a timely manner as well as proactiveness during year-end processes.
2. Failure to Track and Maintain Capital Assets. Finance proposes implementing a series of corrective measures to enhance the tracking procedures of capital assets.
3. Housing and Community Development (HCD) Annual Report Not Filed Timely. Staff agrees to this finding and has implemented various steps to meet the deadline for FY 2024.
More details of the findings and management’s responses can be found in attachment #6, Independent Auditors’ Report on Internal Control Over Financial Reporting.
Staff believes that the recent and new hires in the Finance Department will bring new perspectives and specialized skills to contribute to innovative solutions, improve financial management practices and internal control, and enhance financial transparency.
The following Reports, Letter, and Statements are presented for fiscal year ended June 30, 2023:
1. Annual Comprehensive Financial Report (ACFR) - This report is divided into three major sections: the Introductory Section, the Financial Section, and the Statistical Section. The Introductory Section includes a Letter of Transmittal. The Financial Section comprises the Audit Opinion, Management’s Discussion and Analysis, and the Basic Financial Statements. The Statistical Section provides important historical and trend information about the City. The Audit opinion is an “unqualified opinion”, which states that, in the auditor’s opinion, the basic financial statements of the City are presented fairly in all material respects and are in conformity with generally accepted accounting principles.
2. Audit Communication Letter - a report on recommendations made to management by the auditors to improve internal controls and/or operating efficiencies within the City.
3. Independent Accountants’ Report on Agreed-Upon Procedures Applied to the Appropriations Limit Worksheets - procedures performed solely to assist the City in meeting the requirements of Section 1.5 of Article XIIIB of the California Constitution.
4. Independent Accountants’ Report on Agreed-Upon Procedures Applied to the Investment Portfolio - independent review of investment operations and compliance with the City’s investment policy.
5. Air Pollution Reduction Fund Financial Statements and Independent Auditors’ Report - audited financial statements in accordance with Generally Accepted Auditing Standards and the standards applicable to the financial audits contained in Government Auditing Standards.
6. Independent Auditors’ Report on Internal Control Over Financial Reporting - a report to describe the scope of testing of the City’s internal controls over financial reporting and the results of that testing.
7. Housing Successor Fund Financial Statements - audited financial statements in accordance with Generally Accepted Auditing Standards and the standards applicable to the financial audits contained in Government Auditing Standards.
8. Single Audit of Federally Assisted Grant Programs - audit of compliance requirements as described in the U.S. Office of Management and Budget (OMB) 2 CFR part 200, Uniform Grant Guidance.
7. ATTACHMENTS
1. City of Orange Annual Comprehensive Financial Report and Summary of Audit Results
2. Audit Communication Letter
3. Independent Accountants’ Report on Agreed-Upon Procedures Applied to the Appropriations Limit Worksheets
4. Independent Accountants’ Report on Agreed-Upon Procedures Applied to Investment Portfolio
5. Air Pollution Reduction Fund Financial Statements and Independent Auditors’ Report
6. Independent Auditors’ Report on Internal Control Over Financial Reporting
7. Housing Successor Fund Financial Statements
8. Single Audit of Federally Assisted Grant Programs