Recommendation to Accept the Fiscal Year 2013-14 Audited Financial Statements and Compliance Reports. (City Council/SACIC) (Finance 2410)
So moving right along. Every financial report, every audited financial statement contains three main sections. Next one to the introductory section, which is just a summary of our organization in the context of the results. The financial section, which first of all contains the independent auditors report, which is their opinion, and we always want to see that they give us a clean opinion, that our statements are fairly presented. And the second part of that is the management discussion and analysis, which is a context for all of the results and then the statements. And they are presented in a variety of formats. And if you've looked at the reports recently, we follow all of the required generally accepted reporting requirements. So it doesn't look like just in the quarterly financial reports that we give you, but it's done in a variety of fashions. Excuse me, government wide is summarizing those funds which operate to provide services and business type, which are the enterprise funds of which we have only one now with their net position, which is assets and sources as well as liabilities and uses the major funds which are the individual funds, including their budget, the actual position with fund balances . So there's a variety of ways that we look at all of our. Financial resources. The next part of it is the notes. Notes to the statement which detail the historic information and provide a narrative description of specific items, including assets and long term liabilities, pensions and OPEB, other post-employment benefit liabilities. So if you really want to know more about those issues, you can read the notes and you'll get a lot of detail. Other funds include the non-major. They're smaller in size. They don't have as much operating impact. Internal service funds, which do have impact in that they operate with the operating funds and fiduciary funds, which are things that we do in trust for other people or other organizations. The final section is the statistical section, which which presents financial trends, revenue capacity, debt capacity. I put debit debt, debt capacity, demographic and economic information and other operating data. It is important to note that this is not audited information in the statistical section. It's what staff, supplies and provides. And we rely on other resources and other agencies to give us information as well. So finally, what are our results for this past fiscal year 2013 and 14? So all funds grew as revenues increased and expenditures were contained. So it's true overall for all of the funds. Some of the financial highlights, our net position is $402 million, $23 million of which or 5.7% is unrestricted and available for use for future uses. Governmental Funds Combined Fund balance of $95,000,000.20 $9 million 30% is available for other uses, the reserve policy has is 20%. It actually came out to be 40% at the year end. Subsequently, five additional percent has been at three and a half million dollars was added to the reserve as an exigency reserve. And in addition, we added another $3 million for deficiencies and other long term obligations. So we've reduced that 40%. Debt increased by only $289,000. This increase due to the fluctuation in debt service schedules. They're not all even in the state, just the same all the time. One of the final pieces that the auditors perform is called the Memorandum of Internal Controls and Required Communications, and this report is required under generally accepted auditing standards. And they reported two significant deficiencies. The first first deficiency was is being worked on. And that has to do with continuing disclosure. We did not fully meet the requirements by not timely filing all of our reports. We have contracted with a company DAC Bond to maintain and maintain timely quality filings. One one deficiency was resolved and that had to do with the administrative access controls to our accounting system. And we with the movement to the cloud system are able to more finely tuned those controls and maintain better internal controls. New pronouncements by the Governmental Accounting Standards Board will require that we present the pension and OPEB data in new formats, and we are working with consultants already in order to begin formatting that so that the auditors will have that information in the format that they need. Finally, we have compliance reports. You see in the exhibits attached to the report that there are a lot of smaller reports. These are compliance reports required by either granting agencies or other parts of the state government. We all of the data comes directly from the Kafir and is presented in the compliance reports and perhaps in a little bit different format as required by the granting agency. And that's why we have these separate compliance reports. All of these reports, the audit, the memorandum of Internal Controls and Required Communications and all the compliance reports are posted on our website and are available for everyone to read and query. I'd like to introduce Ms.. Grace Zang from Mason Associates, who has kindly come and kept kept me company this evening and is available to answer any really technical questions that you might have about the audit report. Ashton's. Well, I'm going to ask, is Adam here? I'm going to ask a general catchall question. Is there anything that, however you so define it that's substantially different in the way in which the report was prepared as substantially different from the way in which reports were prepared in the past? And you need to speak in the microphone up here. Prepared this year with last year. Year before. Yeah we have been the auditors for multiple years and I am not the in chief partner. On a job. I'm just representing Catherine. Now, based on my knowledge, there is no, um, we have been consistent in our reporting approach. And in other. Words, except for whatever the state says that you have to report now, the methodology, data sources, the way in which the data is treated for the most part is the same as before. Yes. Okay. That's my catch up basket. Okay. And I'd like to share that. As far as I know, this presentation was not online. I don't think it was part of this packet. No, the presentation is just a summary of what was in the staff report. So no, the present the the powerpoint was not online. Okay. So if the PowerPoint could be added to this and some PowerPoints were included, so then we can see them in advance. And that is my preference, if at all possible. And actually it to me it's an aid and I'm sure it is to our community of it's possible to include the PowerPoints in advance. And there was a comment and yes. Also the there's information in PowerPoint. I think the staff report it. The CAF are the one that jumped off the page to me is the 40% versus 20%. Or if it's not in the staff. Oh, that's the first time I saw. I think that came about as I was preparing this and Miss Warmer Day and I were looking at the analysis of what what the results were and we said, oh, look at this. This is an interesting fact that we didn't know when we would just have a report. If you can come back and tell us what that really means. Why? Why is there that disparity? The disparity? I mean, why why is it so much more. Why it grew was because the revenues increased and the expenses didn't. And it it was already at 30 or 35% in prior years. And so what we gained in this particular fiscal year then added it and brought it up to the 40%. If I may if I may, in a nutshell, we predicted revenue growth of under 3%. We got 3.6% in one year that went into the reserves, the extra. Then last year we closed at 8.1%, having projected about 2.9. That all went in reserve as well. And at the same time the labor contracts began to bite into the employees paychecks by taking more out for health care, taking more out for pensions, all of that. So there was there were cuts and costs happening the same time as unexpected growth in revenue. And hence, you ended up with a, you know, double the policy in terms of where we are, which is, you know, not a bad problem to have, but it shouldn't be confused with the solution to the long term problems that still loom over the city financially. That's why the word unrestricted. Is I mean, it may be true, but it's not. Right. Well. A a part of that is unrestricted, but a part of it is restricted by the actions that the previous council took to restrict those that. A $3 million. I mean, it's unrestricted and restricted or technical terms for the for the auditors and the accountants. It doesn't mean that anybody should look at it and say this money to general fund is not the only fund. There's a lot of other funds that we manage. One of the things that is changing, however, over the past several years is that pension and other post-employment benefit obligations now must be characterized, according to Gatsby. In the past, you didn't even have to put those on your balance sheet. Now you do. I think that kind of application is really important for all the people who may be watching of us to understand the budget that's coming at us a year in calendar year to see what our position. I appreciate that, that explanation. Late hours. And I hope that you will be repeating it that, you know, at another meeting, because I can. Tell you I have my notes right here. Lisa, thank you. Well, there will be a systematic approach to the Council regarding the budget beginning in March and working our way through March, April, May, June to get to a two year budget resolution in early June. So as that happens, these issues will be decanted in significantly greater detail. I like that. Gather member data just quickly. Something like a $29 million budget that amounts to 40% of a 40% reserve, I mean, is absolutely great news with Capital G. I think the key thing for purpose of the public is to understand what's the the key components that's driving it. For example, my understanding is from what former Mayor Mary Gilmore told me, is that a key a key component of that tonight, what contributed to the $29 million reserves is a one time sale of property transactions that generated some level of of of extra taxes that we had not initially calculated, though, that that went to the good . So so I think that's what we're getting at is whenever there are these big things that we all want, there are great. But also one other big things that are not so great understand. What are the key driving elements. Yeah. Thank you. And, and we've already discussed those issues for the budget we have. Yeah. And it turns out that in the last revenue report when we announced the 8.1%, we broke it down into these are one timers and these are ongoing and thank you for bringing that up because the the one time events can't be counted on for up. And I think that's one of one of my council referrals. Principal I'd like us to discuss. Actually get to that for. Any other member comments. I'll move. Accepted. And I'd like to make a comment. Oh. So I was at a conference for mayors and new members. Member authority was also there and a slide was presented in regards to Alameda County City's unfunded OPEB liabilities as a percentage of their general fund as of June 30th, 2013. And and I want to share this as part of this discussion that showed Alameda, those cities ranged from 7% to 140%. And the city of Alameda was the 140%. And I think it's very important that we share that as part of this conversation, because we were talking about. I mean, someone paying attention right now on TV could think we're doing actually very well. And then we have this other issue that is very contrary to that that we will be discussing as we're moving forward. I wanted to add that in your motion now. Yeah. I would move recommendation to accept the fiscal year 20 1314 audited financial statements and compliance reports. All those in favor I oppose. Motion unanimously carries. Thank you. Now the next item meeting. So we will now adjourn that so we can hop to the. Yes. I'm sorry. Madam Chair. Just a point of clarification on the item. At three A. Is the joint meeting. And we cannot continue that meeting until tomorrow night's meeting because it wasn't noticed as a joint meeting. So that one will have to be deferred until the next meeting of the joint body. And is staff that you're okay with that they'll still care. All right. Thank you. So's council. Most of you are okay with that. So then we're going to have that item come back. That was three. We'll come back. We're going to adjourn that meeting and re adjourn go back to that now reopen our general meeting. And the next item was 66. K is the one that you'd like us to address. Six K is. Recommendation to authorize the city manager to execute a professional services agreement between the city and AFRINIC, Brian Day and Company for two year. For two years with three one year extensions for a total. Amount not to exceed $750,400 for independent audit services. Any questions? Yes, I would just make a comment that not only and I think the point was well stated in the report that it's not that the current auditing firm has done anything wrong, but they've been our independent auditors for 24 consecutive years. And sometimes it's just good to get some fresh thinking and new blood in. And if we do approve this contract, we will actually be saving $32,725 over a five year period compared to the previous fees charged by the previous firm.