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1998 City Compliance ReportsI ii 1 i I I I I I I I 0 I I CITY OF ROSEMEAD, CALIFORNIA FINANCIAL AND COMPLIANCE REPORT JUNE 30, 1998 I I 1 1 1 1 0 1 1 'I 1 I 1 1 I 0 1 1 CONTENTS SECTION I - FINANCIAL STATEMENTS INDEPENDENT AUDITOR'S REPORT ON THE GENERAL PURPOSE FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION I FINANCIAL STATEMENTS Combined balance sheet - all fund types and account groups 2 and 3 Combined statement of revenue, expenditures and changes in fund balances - all governmental fund types 4 and 5 Combined statement of revenue, expenditures and changes in fund balances - budget and actual - general, special revenue, debt service and capital projects funds 6 -8 Statement of revenue, expenses and changes in fund balance - Pension Trust Fund 9 Statement of cash flows - Pension Trust Fund 10 Notes to financial statements 11 - 27 SECTION H - SUPPLEMENTARY INFORMATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS Note to schedule of expenditures of federal awards SECTION III - COMPLIANCE MATTERS AND INTERNAL ACCOUNTING AND ADMINISTRATIVE CONTROLS 28 29 INDEPENDENT AUDITOR'S REPORT ON: Compliance with requirements applicable to the major program and internal control over compliance in accordance with OMB Circular A-133 30 and 31 Compliance and on internal control over financial reporting based on an audit of financial statements performed in accordance with Government Auditing Standards 32 and 33 Schedule of findings and questioned costs 34 and 35 Corrective action plan 36 Summary schedule of prior audit findings 37 1 S 1 1 [l I I I 0 I I 1 SECTION I - FINANCIAL STATEMENTS McGLADREY&PULLEN,LLP RSM a Certified Public Accountants and Consultants international INDEPENDENT AUDITOR'S REPORT ON THE GENERAL PURPOSE FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION ' To the Honorable Mayor and Members of the City Council ' City of Rosemead Rosemead, California We have audited the accompanying general purpose financial statements of the City of Rosemead, California, as of and for the year ended June 30, 1998. These general purpose financial statements are the responsibility of the City's management. Our responsibility is to express an opinion on these general t purpose financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial t statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. ' In our opinion, the general purpose financial statements referred to above present fairly, in all material respects, the financial position of the City of Rosemead, California, as of June 30, 1998, and the results of its operations and the cash flows of its pension trust fund for the year then ended in conformity with generally accepted accounting principles. In accordance with Government Auditing Standards, we have also issued a report dated September 18, 1998, on our consideration of the City of Rosemead's internal control over financial reporting and our tests of its compliance with certain provisions of laws; regulations, contracts and grants. n Our audit was made for the purpose of forming an opinion on the general purpose financial statements U taken as a whole. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analyses as required by the U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, and is not a required part of the general purpose financial statements of the City of Rosemead, California. Such information has been subjected to the auditing procedures applied in the audit of the general purpose financial statements and, in our opinion, is fairly presented in all material respects in relation to the general purpose financial statements taken as a whole. 0 I 1 I Pasadena, California September 18, 1998 Suite 300 140 South Lake Avenue Pasadena, California 91101-2651 (626) 795-7950 FAX (626) 795-9820 /gyp Worldwide Services Through RSM International CITY OF ROSEMEAD, CALIFORNIA COMBINED BALANCE SHEET - ALL FUND TYPES AND June 30, 1998 Assets and Other Debits GROUPS Governmental Fund Types Special Debt General Revenue Service Capital Prniert, Assets Cash and investments Receivables Due from other funds Property and equipment Prepaid items Other Debits Amount available in debt service fund Amount to be provided for retirement of general long-term debt Total assets and other debits Liabilities, Municipal Equity and Other Credits Liabilities Accounts payable and accrued liabilities Due to other funds Deferred revenue Refundable deposits Deferred compensation Tax allocation notes and bonds Accrued vacation pay and compensatory time Accrued litigation settlement Total liabilities Municipal Equity and Other Credits Investment in general fixed assets Fund balance: Reserved: Long-term receivable Debt service Low-moderate income housing Employees retirement Unreserved: Designated for: Capital projects Building and equipment replacement Litigation settlements Self insurance Contingencies Undesignated Total municipal equity and other credits Total liabilities, municipal equity and other credits See Notes to Financial Statements. 1 $ 11,454,939 $ 7,059,810 $ 2,322,681 $ 18,394,832 1,234,137 698,441 30,593 287,784 205,393 - - - $ 12,894,469 $ 7,758,251 $ 2,353,274 $ 18,682,616 $ 1,067,246 $ 344,841 $ 1 198,399 126,729 246,682 6,999 1200,9741 789,922 606,932 - - - 2,353,274 4,565,862 - 1,720,000 - - 1,000,000 - - 300,000 - - 3,000,000 - - 5.066563 2409467 - $ 12,894,469 F $ 7,758,251 $ 2,353 $ 309,914 6,994 316,908 18,365,708 $ 18,682,616 2 ' Fiduciary Fund Types Account Groups General ' Trust and General Long-term Total (Memorandum Only) Agency Fixed Assets Debt 1998 1997 $ 305,449 $ 39,537,711 $ 38,184,774 ' 2,250,955 2,201,748 205,393 31,370 13,553,017 13,553,017 13,256,131 920 2,353,274 2,353,274 2,355,613 1 - - 33,633,441 33,633,441 33,923,17 $ 305,449 $ 13,553,017 $ 35,986,715 S 91,533,791 $ 89,953,727 $ $ $ $ 1,722,001 $ 2,074,853 ' 205,393 31,370 373,411 246,682 ' 102,008 102,008 95,568 517,848 - 35,610,000 35,610,000 35,905,000 - - 339,794 346,793 304,714 ' - 36,921 36,921 76,773 102,008 35,986,715 38,396,527 39,252,808 ' - 13,553,017 - 13,553,017 13,256,131 ' - _ 606,932 717,796 2,353,274 2,355,613 _ - 4,565,862 4,251,917 ' 203,441 - - 203,441 212,176 ' _ - 18,365,708 1,720,000 19,039,364 1,720,000 _ - 1,000,000 1,000,000 - - 300,000 300,000 ' - _ 3,000,000 3,000,000 7,469,030 4,847,922 203,441 13,553,017 - 53,137,264 50,700,919 $ 305,449 $ 13,553,017 $ 35,986,715 $ 91,533,791 $ 89,953,727 t 3 CITY OF ROSEMEAD, CALIFORNIA COMBINED STATEMENT OF REVENUE, ALL GOVERNMENTAL FUND TYPES Year Ended June 30, 1998 AND CHANGES IN FUND BALANCES - General Governmental Fund Types Special Debt Revenue Service Capital Projects Revenue Property taxes and special assessments $ $ 418,502 $ $ 2,770,865 Othertaxes 4,134,533 - - Licenses and permits 739,162 - Intergovernmental 3,479,407 3,278,819 Charges for services 489,792 9,700 Fines, forfeitures and penalties 279,164 70,218 - Use of money and property 643,925 498,701 141,574 1,213,094 Other 26,613 160 - 44,855 9,792,536 4,276,100 141,574 4,028,814 Expenditures Current General government 1,631,462 121,052 47,566 Public safety 41309,219 346,724 - Public works 189,453 1,747,433 1,350,424 Public health 45,381 - - Public recreation 1,906,179 - Community service 1,011,882 1,048,819 Capital outlay 56,182 - Debt service: Principal - 295,000 Interest - 1,984,054 - 9,149,758 3,264,028 2,279,054 1,397,990 Revenue over(under)expenditures 1 642,778 1,012,072 (2,137,480) 2,630,824 Other Financing Sources (Uses) Operating transfers: From other funds 1,097,300 564,573 2,135,141 - (To) other funds (45,328) (447,206) - (3,304,480) Revenue and other financing sources over (under) expenditures and other financing (uses) 1,694,750 1,129,439 (2,339) (673,656) Fund Balance, beginning 9,998,745 5,838,890 2,355,613 19,039,364 Fund Balance, ending $ 11,693,4951 $ 6,968,329 $ 2,353,274 $ 18,365,708 See Notes to Financial Statements. 4 I I Total (Memorandum Only) ' 1998 1997 5 3,189,367 1 3,228,384 ' 4,134,533 3,952,511 739,162 760,037 6,758,226 7,532,960 499,492 584,033 349,322 363,938 2,497,294 2,415,335 71,628 63,262 ' 18,239,024 18,900,460 1,800,080 2,053,607 4,655,943 4,922,197 3,287,310 3,349,572 ' 45,381 45,966 1,906,179 2,144,066 2,060,701 1,976.965 ' 56,182 47,683 295,000 280,000 1,984,054 1,991,333 ' 16,090, 830 16,811,389 2,148,194 2,089,071 ' ' 3,797,014 (3,797,014) 3,676,741 (3,676,741) ' ' 2,148,194 37,232,612 2,089,071 35,143,541 $ 39,380,806 S; 37,232,612 1 I 1 5 CITY OF ROSEMEAD, CALIFORNIA COMBINED STATEMENT OF REVENUE, EXPENI BUDGET AND ACTUAL - GENERAL, SPECIAL PROJECT FUNDS Year Ended June 30, 1998 General AND CHANGES IN FUND BALANCES - IE, DEBT SERVICE AND CAPITAL Revenue Actual Revenue Property taxes and special assessments $ Other taxes Licenses and permits Intergovernmental Charges for services Fines, forfeitures and penalties Use of money and property Other Expenditures Current: General government Public safety Public works Public health Public recreation Community service Appropriations reserves Capital outlay Debt service: Principal Interest Revenue over (under) expenditures Other Financing Sources (Uses) Operating transfers: From other funds (To) other funds Revenue and other financing sources over (under) expendi- tures and other financing (uses) Fund Balance, beginning Fund Balance, ending See Notes to Financial Statements. Actual - $ I $ - $ 360,000 $ 418,502 3,854,500 4,134,533 280,033 - - 743,900 739,162 (4,738) - - 3,142,870 3,479,407 336,537 6,172,824 3,278,819 526,200 489,792 (36,408) 8,100 9,700 281,500 279,104 (2,396) 60,000 70,218 418,200 643,925 225,725 309,350 498,701 48,600 26,613 (21,987) 5,150 160 1,788,790 1,631,462 (157,328) 1,238,750 121,052 4,524,770 4,309,219 (215,551) 559,350 346,724 112,640 189,453 76,813 5,206,620 1,747,433 59,000 45,381, (13,619) - - 2,101,650 1,906,179 (195,471) - - 1,017,980 1,011,882 (6,098) 1,766,424 1,048,819 100,000 - 1 (100,000) - - 59,550 56,182 (3,368) _ 9,764,380 9,149,758, (614,622) 8,771,144 3,264,028 (748,610) 642,7781 1,391,388 (1,855,720) 1,012,072 1,097,300 1,097,3001 - 1,492,550 564,573 (242,550) (45,328) 197,222 (1,400,000) (447,206) 854,750 1,051,972 197,222 92,550 117,367 $ 106,140 1,694,7501 $ 1,588,610 $ (1,763,170) 1,129,439 9,998,745 5,838,890 $ 11,693,495 C $ 6,968,329 6 ' Special Revenue Debt Service Capital Projects Over (Under) Over (Under) Over (Under) ' Budget Budget Actual Budget Budget Actual Budget $ 58,502 $ $ $ $ 2,700,000 $ 2,770,865 $ 70,865 (2,894,005) 1,600 - - - _ - ' 10,218 189,351 130,000 141,574 11,574 345,000 1,213,094 868,094 (4,990) - - - - 44,855 44,855 ' (2,639,324) 130,000 141,574 11,574 3,045,000 4,028,814 983,814 (1,117,698) - - - 44,900 47,566 2,666 ' (212,626) (3,459,187) 6,682,250 1,350,424 (5,331,826) ' (717,605) 295,000 295,000 - 1,984,053 1,984,054 l - - ' (5,507,116) 2,279,053 2,279,054 l 6,727,150 1,397,990 (5,329,160) ' 2,867,792 (2,149,053) (2,137,480) 11,573 (3,682,150) 2,630,824 6,312,974 ' (927,977) 2,279,050 2,135,141 (143,909) - - - 952,794 - - (3,226,350) (3,304,480) (78,130) 24,817 2,279,050 2,135,141 (143,909) (3,226,350) (3,304,480) (78,130) ' 132 336 500 $ 6 908 673 656 234 844 $ 6 $ 2,892,609 $ 129,997 (2,339) , ) $ ( ) ( , , ( , ) , , ' 2,355,613 19,039,364 $ 2,353,274 $ 18,365,708 7 I Interest CITY OF ROSEMEAD, CALIFORNIA COMBINED STATEMENT OF REVENUE, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL - GENERAL, SPECIAL REVENUE, DEBT SERVICE AND CAPITAL PROJECT FUNDS, CONTINUED June 30, 1998 Revenue Property taxes and special assessments Othertaxes Licenses and permits Intergovernmental Charges for services Fines, forfeitures and penalties Use of money and property Other Expenditures Current: General government Public safety Public works Public health Public recreation Community service Appropriations reserve Capital outlay Debt service: Principal ' Revenue over (under) expenditures Other Financing Sources (Uses) ' Operating transfers: From other funds (To) other funds Revenue and other financing ' sources over (under) expendi- tures and other financing (uses) ' Fund Balance, beginning Residual equity transfer Fund Balance, ending See Notes to Financial Statements. Total (Memorandum Only) Over (Under) Budget Actual Budget $ 3,060,000 $ 3,189,367 $ 129,367 3,854,500 4,134,533 280,033 743,900 739,162 (4,738) 9,315,694 6,758,226 (2,557,468) 534,300 499,492 (34,808) 341,500 349,322 7,822 1,202,550 2,497,294 1,294,744 53,750 71,628 17,878 19,106,194 18,239,024 (867,170) 3,072,440 1,800,080 (1,272,360) 5,084,120 4,655,943 (428,177) 12,001,510 3,287,310 (8,714,200) 59,000 45,381 (13,619) 2,101,650 1,906,179 (195,471) 2,784,404 2,060,701 (723,703) 100,000 - (100,000) 59,550 56,182 (3,368) 295,000 1,984,053 295,000 1,984,054 1 27,541,727 16,090,830 (11,450,897) (8,435,533) 2,148,194 10,583,727 4,868,900 3,797,014 (1,071,886) (4,868,900) (3,797,014) 1,071,886 $ (8,435,533) 2,148,194 $ 10,583,727 37,232,612 $ 39,380,806 8 1 a CITY OF ROSEMEAD, CALIFORNIA STATEMENT OF REVENUE, EXPENSES AND CHANGES IN PLAN ASSETS - PENSION TRUST FUND Year Ended June 30, 1998 a ' Operating revenue, interest and other investment income $ 15,643 Operating expenses: ' Administrative fees 3,659 Pension benefits 20,719 ' 24,378 Net (loss) (8,735) ' Fund balance, beginning 212,176 ' Fund balance, ending $ 203,441 See Notes to Financial Statements. e 9 ' CITY OF ROSEMEAD, CALIFORNIA ' STATEMENT OF CASH FLOWS - PENSION TRUST FUND Year Ended June 30, 1998 Cash Flows from Operating Activities ' Net (loss) $ (8,735) Adjustments to reconcile net (loss) to net cash (used in) operating activities: ' Administrative expenses payable 3,659 ' Net cash (used in) operating activities (5,076) Cash Flows Provided by Investing Activities ' Proceeds from the sale and maturity of annuity contracts Unrealized interest and investment income 20,719 (15 643) , Net cash provided by investing activities 5,076 Cash, beginning - Cash, ending $ ' See Notes to Financial Statements. 10 1 I NOTES TO FINANCIAL STATEMENTS CITY OF ROSEMEAD, CALIFORNIA ' Note 1. Reporting Entity, Nature of Operations, Description of Funds and Account Groups, and Significant Accounting Policies ' Reporting Entity ' As required by generally accepted accounting principles, these financial statements present the government and its component units, entities for which the government is considered to be financially accountable. Blended component units, although legally separate entities, are, in substance, part of the government's operations and are controlled by common governing boards; therefore, data from these ' units is combined with data of the primary government. The blended component units included in the City of Rosemead (the City) reporting entity are the Rosemead Redevelopment Agency (the Agency) and the Rosemead Housing Development Corporation (the Corporation) which is a component unit of the ' Agency. The component units have the same fiscal year as the City. The component unit financial statements can be obtained from the City Clerk. 1 I Nature of operations City of Rosemead The City provides a broad range of services to its citizens, including general government, public safety, streets, sanitation and health, cultural and park facilities, and social services. Many of the functions often provided by municipal government are, in the City, provided by special districts. Examples of some of these special districts, which usually encompass areas larger than the City itself, are the Fire Protection District, the Library District and the County Flood Control District. Certain other governmental functions are paid for by the City, but performed by Los Angeles County departments under contract. Some of the contracts now in effect are for police, street maintenance and animal control. Rosemead Redevelopment Agency The Agency finances street, park and utility improvements. It also acquires and constructs major capital facilities, all within the Rosemead Project Area No. 1. Rosemead Housing Development Corporation The Corporation accounts for the construction, financing and operations of low and moderate income housing. It is a California nonprofit benefit corporation organized under Section 501(c)(3) of the Internal Revenue Code. 1 I CITY OF ROSEMEAD, CALIFORNIA NOTES TO FINANCIAL STATEMENTS ' Note 1. Reporting Entity, Nature of Operations, Description of Funds and Account Groups, and Significant Accounting Policies, Continued ' Measurement focus, basis of accounting and basis of presentation The accounts of the City and its component units are organized and operated on the basis of funds and ' account groups. A fund is an independent fiscal and accounting entity with a self-balancing set of accounts. Fund accounting segregates funds according to their intended purpose and is used to aid management in demonstrating compliance with finance-related legal and contractual provisions. The ' minimum number of funds are maintained consistent with legal and managerial requirements. Account groups are a reporting device to account for certain assets and liabilities of the governmental funds not recorded directly in those funds. The government has the following fund types and account groups: 1 1 0 1 1 1 I Governmental Funds are used to account for the general government activities. Governmental fund types use the flow of current financial resources measurement focus and the modified-accrual basis of accounting. Under the modified-accrual basis of accounting, revenue is recognized when susceptible to accrual (i.e., when they are measurable and available). "Measurable" means the amount of the transaction can be determined and "available" means collectible within the current period or soon enough thereafter to pay liabilities of the current period. The government considers all revenue available if it is collected within 60 days after year end. Expenditures are recorded when the related fund liability is incurred, except for unmatured interest on general long-term debt, which is recognized when due, and certain compensated absences and claims and judgments, which are recognized when the obligations are expected to be liquidated with expendable available financial resources. In determining when to recognize intergovernmental revenue (grants, subsidies and shared revenue), the legal and contractual requirements of the individual programs are used as guidance. There are, however, essentially two bases for this revenue recognition. In one, moneys must be expended on the specific purpose or project before any amounts will be paid to the City; therefore, revenue is recognized based upon the expenditures recorded. In the other, moneys are virtually unrestricted as to purpose of expenditure and nearly irrevocable, i.e., revocable only for failure to comply with prescribed compliance requirements, e.g., equal employment opportunity. These resources are reflected as revenue at the time of receipt, or earlier if they meet the criterion of availability. Other major revenue that is determined to be susceptible to accrual includes taxes and interest. Major revenue that is determined not to be susceptible to accrual because it is either not available soon enough to pay liabilities of the current period or not objectively measurable include licenses, permits, fines and forfeitures. Expenditures are recorded when the liability is incurred, except for interest on long-term debt and sick pay, which are recorded when paid. Vacation pay is recorded as an expenditure in the year it is earned, to the extent it is paid in that year or within 90 days after year end; otherwise, it is recorded as an expenditure when it is paid. Estimated losses on insurance claims are charged to expense in the period the loss is determinable. 12 I I I I 1 I CITY OF ROSEMEAD, CALIFORNIA NOTES TO FINANCIAL STATEMENTS Note]. Reporting Entity, Nature of Operations, Description of Funds and Account Groups, and Significant Accounting Policies, Continued The Agency funds are custodial in nature and do not present results of operations or have a measurement focus. The accrual basis of accounting is used for the Pension Trust Fund utilizing the flow of economic resources measurement focus. Under the accrual basis of accounting, revenue is recognized when earned and expenses are recorded when-incurred. The Pension Trust Fund applies applicable FASB pronouncements issued prior to November 1989 to its financial accounting and reporting. Governmental Fund Types The General Fund accounts for all financial resources except those required to be accounted for in another fund. These resources are devoted to financing the general services that the City performs for its citizens. Special Revenue Funds account for the proceeds of specific revenue sources (other than special ' assessments, expendable trusts and major capital projects) that are legally restricted to expenditures for specified purposes. The Special Revenue Funds and their purposes are as follows: ' The Traffic Safety Fund accounts for the receipt of vehicle code fines which are expended for traffic safety enforcement. ' The State Gas Tax Fund accounts for funds collected from the state of California which are used for street construction, street maintenance, engineering and administrative costs. The Air Quality Management District Fund accounts for the City's share of automobile registration fees collected from the state by the South Coast Air Quality Management District. The funds are used in improving transportation systems and to reduce reliance on private vehicles. The Local Transportation Fund accounts for state grants used to finance the construction of bikeways and sidewalks. ' The Public Transportation Funds account for the City's share of additional sales tax collected in the County of Los Angeles as a result of Propositions A and C. The funds are used to finance public ' transportation projects. The Community Development Block Grant Fund accounts for Community Development Block ' Grants received from the United States Department of Housing and Urban Development. The 1976 Community Parklands Grant Fund accounts for funds to be used for park projects. ' The Street Lighting Fund accounts for the operation of street lights within the City. The Narcotics Seizure Fund accounts for the funds received from the County of Los Angeles from the ' confiscation of cash and other valuables seized during drug related police raids. The funds are used to further enhance the City's drug related crime prevention and detection programs. 13 I I NOTES TO FINANCIAL STATEMENTS CITY OF ROSEMEAD, CALIFORNIA Note 1. Reporting Entity, Nature of Operations, Description of Funds and Account Groups, and Significant Accounting Policies, Continued ' The Low-Moderate Income Housing Set Aside Fund accounts for the 20% of gross property tax increment revenue received by the Agency to fund future projects involving the replacing or rehabilitation of low and moderate income housing within City limits. 1 The Rosemead Housing Development Corporation accounts for the construction and financing of low and moderate income housing. It is a Califomia nonprofit public benefit corporation organized under ' Section 501(c)(3) of the Internal Revenue Code. The California Wildlife Grant Fund accounts for a state grant for preapproved specified park projects. The Debt Service Fund accounts for the accumulation of resources for the payment of general long-term debt principal, interest and related costs. Capital Projects Fund (Redevelopment Fund) accounts for financial resources to be used for the ' improvement and rehabilitation of the community redevelopment project areas and acquisition or construction of major capital facilities within the Agency. ' Fiduciary Fund Types Fiduciary Funds account for assets held by the government in a trustee capacity or as an agent on behalf ' of others. Trust funds account for assets held by the government under the terms of a formal trust agreement. The City's Fiduciary Fund Types are as follows: ' The Pension Trust Fund, a nonexpendable trust fund, accounts for the activity of the retirement plan for employees of the City using the accrual basis of accounting. ' The Agency Fund accounts for the assets held in a trustee capacity or as an agent. The cash being held primarily represents amounts placed on deposit for refundable permits and performance bonds. The Agency fund is custodial in nature and does not present results of operations or have a ' measurement focus. Account Groups The General Fixed Assets Account Group is used to account for the City's fixed assets. The General Long-term Debt Account Group is used to account for general long-term debt and ' certain other liabilities that are not specific liabilities of proprietary or trust funds. 1 I 14 0 1 1 1 CITY OF ROSEMEAD, CALIFORNIA NOTES TO FINANCIAL STATEMENTS Note I. Reporting Entity, Nature of Operations, Description of Funds and Account Groups, and Significant Accounting Policies, Continued The following is a summary of significant accounting policies: Changes in Accounting Principle As of July I, 1997, the City of Rosemead adopted Government Accounting Standards Board (GASB) Statement No. 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools. GASB Statement No. 31 requires that investments be reported at their fair value and that all changes in fair value be reflected in income for the period in which they occur. The adoption of this Statement had no material effect on the financial statements for fiscal year ended June 30, 1998. As of July 1, 1997, the City of Rosemead adopted GASB Statement 27, Accountingfor Pensions by State and Local Governmental Employers. This Statement establishes standards for measurement, recognition and display of pension expense and related liabilities, assets and disclosures in the financial statements of state and local government employers. The adoption of this Statement had no material effect on the financial statements for fiscal year ended June 30, 1998. The City of Rosemead has also adopted GASB No. 32, Accounting and Financial Reporting for Internal Revenue Code Section 457 Deferred Compensation Plans. This Statement establishes accounting and financial reporting standards for Internal Revenue Code Section 457 deferred compensation plans of state and local governmental employers. The effect of this Statement was to eliminate the asset and corresponding liability from the City's books for the year ended June 30, 1998. Also, because the Board was unaware of any additional risks to plan sponsors, under the revised Internal Revenue Code provision, any related financial statement disclosures for the deferred compensation plan have been omitted for the fiscal year ended June 30, 1998. ' Management has the ultimate responsibility for the appropriateness of the accounting policies and procedures used by the City. Cash investments and other investments As of July 1, 1997, the City of Rosemead adopted GASB No. 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools. GASB No. 31 requires that investments be reported at their fair value and that all changes in fair value be reflected in income for the period in ' which they occur. The City records all investments at fair value, with the exception of Government Investment Contracts and Commercial Paper and Bonds which are carried at cost. The City has identified these investments as either being nonnegotiable, having a maturity of one year or less, having a ' redemption value that was fixed and not linked to some sort of index or other market-determined factor, and the investments are with reputable organizations with good credit standing so that the value of the investments was not significantly impaired as of year end. The City pools cash and investment resources of some of its funds in order to facilitate the management of cash. Cash applicable to a particular fund is readily identifiable. The balance in the pooled cash accounts is available to meet current operating requirements. Investment earnings are allocated based on ' the source of funds. 15 I 1 CITY OF ROSEMEAD, CALIFORNIA NOTES TO FINANCIAL STATEMENTS Note 1. Reporting Entity, Nature of Operations, Description of Funds and Account Groups, and Significant Accounting Policies, Continued I Receivables I 1 I I L I considered to be vested and are paid to the employee based on a vesting schedule. In addition, Property taxes attach as an enforceable lien on property as of March I. Taxes are levied on July I and are payable in two installments on December 10 and April 10. The County of Los Angeles bills and collects the property taxes and remits them to the City in installments during the year. Property taxes received within 60 days after the City's fiscal year end are considered "measurable" and "available" and are accrued in the City's financial statements. All other receivables are reported at their gross value and, where appropriate, are reduced by the estimated portion that is expected to be uncollectible. Property and equipment All property and equipment of the City are accounted for in the general fixed assets account group. Public domain (infrastructure) general fixed assets, consisting of certain improvements other than buildings, such as roads, sidewalks and bridges, are not capitalized. Property and equipment acquired or constructed for general governmental operations are recorded as expenditures in the fund making the expenditure and capitalized in the general fixed assets account group. All general fixed assets which were purchased or constructed are stated at cost. Assets acquired by gift or bequest are recorded at their fair market value at the date of transfer. No depreciation is recorded on general fixed assets. Fund balances The reserved portion of the fund balances represents that amount which has been legally identified for the specific purpose or it represents that amount which is not available to liquidate current liabilities. The unreserved portion represents the amount available for budgeting future operations. Vacation pay and compensatory time City employees accumulate vacation hours which may be paid upon termination, death or retirement. Employees can accumulate up to three weeks of accrued vacation per year depending on the length of employment. Employees can accumulate up to 160 hours of sick leave. Any hours in excess of 160 are employees can accrue compensatory time. ' The vested portion of vacation and sick leave by employees at June 30, 1998 that is expected to be paid within 90 days after year end is included in accrued liabilities in the General Fund. The amount not expected to be paid within 90 days is included in the General Long-term Debt Account Group. I 16 CITY OF ROSEMEAD, CALIFORNIA I I NOTES TO FINANCIAL STATEMENTS ' Note 1. Reporting Entity, Nature of Operations, Description of Funds and Account Groups, and Significant Accounting Policies, Continued ' "Memorandum Only" total columns Included on the combined financial statements are total columns captioned "Memorandum Only" to ' indicate that they are presented only for informational purposes. Adjustments to eliminate interfund transactions have not been recorded in arriving at such amounts and the memorandum totals are not intended to fairly present the financial position or results of operations of the reporting entity taken as a whole. Additionally, the 1997 totals presented in the "Memorandum Only" columns are included to provide a summarized comparison with comparable 1995 amounts and are not intended to present all information necessary for a fair presentation of financial position and results of operations in accordance with generally accepted accounting principles. Note 2. Budget Matters ' The annual budget adopted by the City Council provides for the general operation of the City. It includes proposed expenditures and estimated revenue for all governmental fund types. ' Budgets presented in this report for comparison to actual amounts are presented in accordance with generally accepted accounting principles. Reported budget amounts represent the original adopted budget as amended. ' The City Manager is authorized to make transfers of appropriations within a department. Transfers of appropriations between departments require the approval of the governing council. The legal level of ' budgetary control is the department level. The governing council made several supplemental budgetary appropriations throughout the year, none considered to be material. In all funds, unexpended budgeted amounts lapse at the end of the budget year. I I I 17 I NOTES TO FINANCIAL STATEMENTS CITY OF ROSEMEAD, CALIFORNIA I Note 3. Cash and Investments ' The components of cash and investments at June 30, 1998 are as follows: Cash in bank $ 2,782,353 ' Time certificates of deposit 2,987,350 Cash total 5,769,703 Other investments 4,768,750 Cash with fiscal agent 2,322,683 Guaranteed investment contracts 6,134,383 ' Investment in State Treasurer's Investment Pool 20,338,751 Investment in annuity contracts 203,441 Investments total 33,768,008 Cash and investments total $ 39,537,711 ' Cash ' At year end, the carrying amount of the City's and Agency's deposits (i.e., cash in bank and time certificates of deposit) was $5,769,703 and the bank balance was $5,761,994. Of the $5,761,994 bank balance, $729,801 was covered by federal depository insurance and $5,032,193 was collateralized by ' depository collateral pools as described in the following paragraph. In accordance with state statutes, the City and Agency maintains deposits at those depository institutions ' insured by the Federal Depository Insurance Corporation. The California Government Code requires California banks and savings and loan associations to collateralize governmental entities' deposits by pledging government securities as collateral. The market value of pledged securities must equal at least ' 110% of a city's deposits. California law also allows financial institutions to secure City deposits by pledging first trust deed mortgage notes having a collateral value of 150% of an the entity's total deposits. The City and the Agency maintain cash and investment pools that are available for use by all funds. Each fund's or fund type's share of the pool balance is reported in the financial statements as cash and cash investments. Earnings from the pooled investments are allocated monthly to each participating fund ' State statutes authorize the City to invest any available funds in securities issued or guaranteed by the ' United States Treasury or agencies of the United States, bank certificates of deposit, bankers acceptances, negotiable certificates of deposit, the State Treasurer's Investment Pool (LAIF), repurchase agreements, commercial paper and bonds, registered warrants or treasury notes of the State of California ' and its local agencies. An advistory board has been established to monitor the LAIF's compliance with regulations and investment alternatives established by the state. 18 based on a Investments formula that takes into consideration each fund's average investment in the pool. i 1 1 1 k J I CITY OF ROSEMEAD, CALIFORNIA NOTES TO FINANCIAL STATEMENTS Note 3. Cash and Investments, Continued Investments include cash with a fiscal agent for $2,322,683, which is invested in a guaranteed investment contract accruing interest monthly at an interest rate of 5.8%, maturing October I, 2013. Investments in annuity contracts included $203,441 invested in the Pension Trust Fund. This investment was carried at market value. Investments also included $6,134,383 of amounts invested in various guaranteed investment contracts which accrue interest quarterly at interest rates ranging from 7.18% to 7.41%, maturing through October 1, 1999. The management of the state of California Pooled Money Investment Account (referred to as LAIF) has indicated to the City that as of June 30, 1998 the amortized cost value of the pool was $31,920,000,841 and the estimated fair value of the pool was $31,932,227,970. The City's share of the fair value is $20,338,751. Included in the state of California Pool is 95.63% invested in certain derivatives or similar products and 4.37% invested in nonderivative financial products. The City's share of LAIF is not subject to custodial credit risk categorization. Other investments are categorized in the following schedule to give an indication of the level of risk assumed by the entity at year end. Investment 2 Carrying Fair Amount Value U.S. government and government agency securities State and municipal bonds Commercial paper and bonds Cash with fiscal agent Guaranteed investment contracts Investment in State Treasurer's Investment Pool Investment in annuity contracts Total other investments $ $ $ 3,940,498 $ 3,940,498 $ 3,940,498 499,595 499,595 499,595 328,657 328,657 328,657 $ - $ - $ 4,768,750 4,768,750 4,768,750 2,322,683 2,322,683 6,134,383 6,297,612 20,338,751 20,338,751 203,441 203,441 $ 33,768,008 $ 33,931,237 19 I 1 1 1 1 CITY OF ROSEMEAD, CALIFORNIA NOTES TO FINANCIAL STATEMENTS Note 3. Cash and Investments, Continued The three preceding risk description categories are defined as follows: Category 1 Investments that are insured, registered or for which the securities are held by the City or its agent in the City's name. 2 Uninsured and unregistered investments for which the securities are held by counter- party's Trust Department (if a bank) or agent in the City's name. 3 Uninsured and unregistered investments for which the securities are held by counter- party's Trust Department (if a bank) or agent, but not in the City's name. Note 4. Receivables Receivables as of June 30, 1998 consist of the following: Special Capital General Revenue Debt Service Projects Total Property tax increment $ - $ - $ - $ 43,747 $ 43,747 Accrued interest 137,571 71,703 30,593 244,037 483,904 Due from local utility companies 606,932 - - - 606,932 Due from other governmental agencies 224,132 626,738 - - 850,870 Transient occupancy tax 206,595 - - - 206,595 Other 58,907 - - - 58,907 $ 1,234,137 $ 698,441 $ 30,593 $ 287,784 $ 2,250,955 1A) During the year ended June 30, 1987, the Agency approved a reimbursement agreement with a local utility company, advancing the utility company funds required to install a water line and a water main extension. The total amount advanced was $493,807. The Agency then contributed the receivable to the City at the present valued amount. The City is to collect this receivable from the utility company in 40 annual installments of $12,345, with the final installment due June 30, 2027. During the year ended June 30, 1990, the Agency approved a similar reimbursement agreement ' with a local utility company, advancing the utility company funds required to replace various water mains. The total amounts advanced under this agreement were $334,705 during the year ended June 30, 1990 and $29,372 during the year ended June 30, 1992. The Agency then contributed the receivables to the City. The City is to collect the receivables from the utility company in 15 noninterest-bearing annual installments of $35,987 and $1,958, with the final installments due June 30, 2005 and September 30, 2006. 1 20 I NOTES TO FINANCIAL STATEMENTS CITY OF ROSEMEAD, CALIFORNIA I Note 4. Receivables, Continued During the year ended June 30, 1994, the Agency approved an additional reimbursement ' agreement with a local utility company, advancing the utility company funds requ ired to install a water main and fire service improvements. The total amount advanced was $311,600. The Agency then contributed the receivable to the City at the present valued amount of $212,431. The ' City is to collect this receivable from the utility company in 15 annual installments of $20,773, with the final installment due June 30, 2006. Note S. Interjund Receivables and Payables ' Interfund receivables and payables as of June 30, 1998 are as follows: Interfund ' Funds Receivables Payables General Fund $ 205,393 $ - ' Special Revenue Funds: Traffic Safety - 8,548 ' California Wildlife Grant - Community Development Block Grant 1,400 188,451 - 198,399 Capital Projects Fund - 6,994 $ 205,393 $ 205,393 ' ' Note 6. Property and Equipment Changes in property and equipment during the year ended June 30, 1998 were as follows: Balance, Balance, June 30, 1997 Acquisitions Disposals June 30, 1998 ' Land $ 4,730,565 $ - $ $ 4,730,565 Buildings and improvements 5,641,692 143,622 5,785,314 ' Vehicles 252,264 29,026 22,417 Furniture and office equipment 1,198,734 115,562 258,873 1,314,296 Special equipment and machinery 566,205 29,281 595,486 Other improvements 866,671 1,812 - 868,483 ' $ 13,256,131 $ 319,303 $ 22,417 $ 13,553,017 21 I I 1 I comprehensive annual financial report. Copies of CalPERS' annual financial report may be obtained CITY OF ROSEMEAD, CALIFORNIA NOTES TO FINANCIAL STATEMENTS Note 7. Employee Pension Plans Defined contribution pension plan The City had a defined contribution pension plan which covered substantially all retired employees and was funded by a group annuity contract. Plan participants became vested upon the dissolution of the plan on September 8, 1992. There were no subsequent contributions to this plan. On September 8, 1992, participants of the plan who were current employees had their share of the annuity contract transferred to the California Public Employee Retirement System (CalPERS). The value of the annuity contract for retired employees was $203,441 as of June 30, 1998. Plan description The City's defined benefit pension plan, PERS, provides retirement and disability benefits, annual cost-of-living adjustments, and death benefits to plan members and beneficiaries. The PERS is part of the Public Agency portion of the California Public Employees Retirement System (CalPERS), an agent multiple-employer plan administered by CalPERS, which acts as a common investment and administrative agent for participating public employers within the state of California. A menu of benefit provisions as well as other requirements are established by state statutes within the Public Empoyees' Retirement Law. The City of Rosemead selects optional benefit provisions from the benefit menu by contract with CalPERS and adopts those benefits through local ordinance. CalPERS issues a separate from the CalPERS Executive Office, 400 P Street, Sacramento, California 95814. Funding policy Active plan members in the PERS are required to contribute 7% of their annual covered salary. The City ' of Rosemead is required to contribute the actuarially determined remaining amounts necessary to fund the benefits for its members. The actuarial methods and assumptions used are those adopted by the CalPERS Board of Administration. The required employer contribution rate for fiscal 1995-1996 was ' 5% to 6%. The contribution requirements of plan members are established by state statute and the employer contribution rate is established and may be amended by CAPERS. 1 11 Annual pension cost For fiscal year 1995-1996, the City of Rosemead's annual pension cost was $94,186 and the City of Rosemead actually contributed $94,186. The required contribution for fiscal year 1995-1996 was determined as part of the June 30, 1995 actuarial valuation using the entry age normal actuarial cost method with the contributions determined as a percent of pay. The actuarial assumptions included (a) 8.5% investment rate of return (net of administrative expenses); (b) projected salary increases that vary by duration of service ranging from 4.5% to 14.95% and (c) 4.5% cost-of-living adjustment. Both (a) and (b) include an inflation component of 4.5%. The actuarial value of PERS 's assets was determined using a technique that smoothes the effect of short-term volatility in the market value of investments over a two- to five-year period depending on the size of investment gains and/or losses. PERS's unfunded actuarial accrued liability (or excess assets) is being amortized as a level percentage of projected payroll on a closed basis. The remaining amortization period at June 30, 1996 was 27 years. 22 I NOTES TO FINANCIAL STATEMENTS CITY OF ROSEMEAD, CALIFORNIA 1 Note 7. Employee Pension Plans, Continued The City had no transition pension liability resulting from the adoption of GASB Opinion No. 27, ' Accounting for Pension of State and Local Governmental Employers, on Ju ly 1, 1997. Annual Percentage Pension Cost of APC Net Pension Fiscal Year Ended June 30, (APC) Contributed Obligation ' 1994 $ 97,850 100 % $ 1995 106,135 100 1996 94,186 100 1 Required Supplementary Information ' Funded Status of Plan Entry Age Unfunded/ Normal Actuarial (Over- Annual UAAL Valuation Accrued Value of funded) Funded Covered as a % of Date Liability Assets Liability Ratio Payroll Payroll ' 6/30/94 $ 2,227,244 $ 1,580,229 $ 647,015 70.9 % $ 1,298,022 49.846 % 6/30/95 2,449,214 1,882,392 566,822 76.9 1,311,860 43.208 6/30/96 2,765,067 2,302,007 463,060 83.3 1,218,455 38.004 ' Note & Deferred Compensation Plan ' The City has adopted a deferred compensation plan in accordance with Section 457 of the Internal Revenue Code. Generally, all eligible employees may defer receipt of a portion of their salary until ' future years. The employees are not liable for income taxes on amounts deferred until the funds are withdrawn. At June 30, 1998 and 1997, assets of the plan totaled approximately $652,000 and $518,000 respectively. ' In prior years, all of the plan assets until paid or made available to the employee on their beneficiary, were the sole property of the Authority, subject to the claims of the Authority's general creditors. The ' plan was amended during the year ended June 30, 1998, in accordance with recent changes in the Internal Revenue Code, so that all assets are now held for exclusive benefit of the participants and their beneficiaries. Therefore, the plan assets and corresponding liability to the participants are no longer ' recognized in the accompanying financial statements. I 23 I CITY OF ROSEMEAD, CALIFORNIA I NOTES TO FINANCIAL STATEMENTS I Note 9. Self-insurance Program The City is exposed to various risks of loss related to torts; theft of, damage to and destruction of assets; ' errors and omissions; and injuries to employees. The City carries commercial liability insurance and bonds its employees. The City carries no insurance coverage for natural disasters. Beginning in 1977, the City became a member of the Southern California Joint Powers Insurance Authority (the Authority) ' (a joint powers authority of 77 California cities) for the purpose of pooling their losses and claims of workers' compensation and general liability with those of other member cities. The Authority is governed by a Board of Directors which is composed of one representative and an alternate selected by ' the City Council of each city. Each Board member has one vote regarding control of all budgeting, financial and management issues coming before the Board of Directors. ' The City, through the Authority, has a self-insured retention of $20,000. The amount exceeding the self-insured retention level, excluding costs for "property damage only" occurrences which have a total incurred value of $2,000 or less, will be shared pro ratably among the pool based upon each member's ' share of cost under $30,000 up to a maximum of $500,000. Any losses above $500,000, including claims adjusting costs and administrative expenses, are shared pro rata based upon each member's share of aggregate payroll. The City has employers' liability insurance up to $5,000,000 per occurrence. The coverage under this arrangement includes statutory liability under California Workers' Compensation Law and any liability under law for damages arising from employment. ' Settled claims have not exceeded coverage for these risks in any of the last three fiscal years. ' Note 10. Long-term Debt Tax allocation bonds, Series 1993 A and B ' In November 1993, the Rosemead Redevelopment Agency issued tax allocation bonds in the amount of $34,275,000 (Series 1993A) and taxable tax allocation refunding bonds in the amount of $2,435,000 ' (Series 1993B) to finance a portion of the cost of the redevelopment area known as Project Area No. 1. The bonds bear interest ranging from 4.6% to 5.6% and 5.2% to 5.9% for Series 1993A and B, respectively. From the proceeds, $14,652,398 of Series A and $2,382,551 of Series B, along with the existing reserve amount of $2,651,000 on deposit with the fiscal agent, were used to purchase U.S. ' government securities. Those securities were deposited in an irrevocable trust with an escrow agent to provide for all future debt service payments on the 1987 and 1991 tax allocation bonds which are, therefore, considered defeased. Series 1993A bonds mature after October 1, 2001 and before October 1, 1 2033, and Series 1993B bonds mature on or before October 1, 2001 In addition, the 1993 bond issue reallocated the $6,813,850 of the proceeds from the 1991 bond issue ' deposited in the Low-Moderate Income Housing Fund in October 1991. The reallocation had the effect of satisfying the $423,574 borrowed from the ERAF in fiscal year ended June 30, 1993 and satisfying the set-aside requirements as follows: $812,342 for fiscal year ended June 30, 1992, $847,147 for fiscal year ' ended June 30, 1993 and $469,142 for each of the fiscal years ended June 30, 1997 through June 30, 2022. I 24 I 11 I ' During the Year Ending June 30, 1 1 1 CITY OF ROSEMEAD, CALIFORNIA NOTES TO FINANCIAL STATEMENTS Note 10. Long-term Debt, Continued Compensated absences That portion of the liability for the vested compensated absences totaling $339,794 which is not expected to be paid from available resources is reported in the General Long-term Debt Account Group. Other long-term debt The City has included amounts in the long-term debt account groups for a litigation settlement. The following is a summary of the general long-term debt transactions for the year ended June 30, 1998: Accrued Tax Allocation I'm Allocation Vacation and Bonds Series Bonds Series Litigation Compensatory 1993A 19938 Settlement Time Total Balance, June 30, 1997 $ 34,275,000 $ 1,630,000 $ 76,773 $ 297,011 $ 36,278,784 Payments of principal - (295,000) (39,852) - (334,852) Additions 42,783 42,783 Balance, June 30, 1998 $ 34,275,000 $ 1,335,000 $ 36,921 $ 339,794 $ 35,986,715 The annual requirements, principal and interest to amortize the outstanding debt as of June 30, 1998 are as follows: Accrued Series 1993 Vacation and A and B Litigation Compensa- Bonds Settlement tory Time Interest Total 1999 $ 310,000 $ 36,921 $ 339,794 $ 1,962,034 $ 2,648,749 2000 330,000 - - 1,942,258 2,272,258 2001 345,000 - - 1,922,848 2,267,848 2002 370,000 - - 1,902,518 2,272,518 2003 425,000 - - 1,891,273 2,316,273 Years thereafter 33,830,000 - - 37,955,315 71,785,315 $ 35,610,000 $ 36,921 $ 339,794 $ 47,576,246 $ 83,562,961 Dejeasanee ojprior debt The Agency has advance refunded prior bond issues which are considered defeased and, accordingly, the long-term debt liability has been removed from the General Long-term Debt Account Group. The Agency is, however, contingently liable if, for any reason, the funds on deposit are not sufficient to retire the defeased debt. On June 30, 1998, $7,732,335 of outstanding bonds are considered defeased. 25 1 I 1 1 I 1 I I I I CITY OF ROSEMEAD, CALIFORNIA NOTES TO FINANCIAL STATEMENTS Note]]. Budget Overexpenditures and Deficit Expenditures exceeded appropriations for the year ended June 30, 1998 in the following departments: Amount of Over- Appropriations Expenditures expenditures General Fund Travel and meetings $ 23,000 $ 28,178 $ 5,178 City administration 492,100 514,411 22,311 Animal regulation 50,000 57,138 7,138 Parking control 125,200 146,358 21,158 Narcotics forfeiture - 42 42 Street and highway construction 76,000 146,310 70,310 Traffic signs and striping maintenance - 9,989 9,989 Building regulation 444,800 488,156 43,356 Community improvements 93,120 106,016 12,896 Traffic Safety Fund Public safety 60,000 70,218 10,218 Air Quality Management District Fund Public works 24,500 51,289 26,789 Note 12. Commitments and Contingent Liabilities Low-Moderate Income Housing Set-Aside Fund Under state law, the Agency is required to set aside a portion of its property tax increment revenue for low- and moderate-income housing. The Agency has made findings that, for the years ended June 30, 1986 through 1991, it was allowed to defer funding of the set-aside. The set-aside amounts incurred during the fiscal years ended June 30, 1994, 1995, 1996 and 1997 were also deferred until the fiscal year ending June 30, 2023, as provided by the Agency's adoption of the housing deficit repayment plan. As of June 30, 1998, the accumulated set-aside amount not yet funded was approximately $4,947,000. As required by law, the Agency devised a plan to fund the accumulating amount. Litigation The City is a member of the "LA County Liability Trust Fund" which was set up to pay for litigation involving the Los Angeles County Sheriffs' Department within any of the 41 cities that are serviced by the LA County Sheriffs. The Trust Fund was and is being funded by the 41 cities based upon an additional 6% charge on the amount paid to Los Angeles County for the use of its deputies within the City. Based upon the agreement signed by all of the 41 cities at the time the Trust Fund originated, the cities will be jointly liable for any and all claims filed against an Los Angeles Sheriffs' Deputy, no matter which of the 41 cities that claim arose from. 26 I I CITY OF ROSEMEAD, CALIFORNIA NOTES TO FINANCIAL STATEMENTS Note 11. Commitments and Contingent Liabilities, Continued In 1998 the County of Los Angeles lost a litigation matter which resulted in a $25,000,0000 judgment against the Los Angeles County Sheriffs' Department which Los Angeles County has since paid. Now Los Angeles County is looking to collect this money back from the 41 cities which were members of the trust fund. At this time it is too early for the City to predict the financial impact of its share of the settlement which must be paid to the County of Los Angeles, nor do they know what length of time the settlement payments, if any, will be spread over. As a result, the City has not recorded any liability relating to this matter in its June 30, 1998 financial statements. Advance agreement In February 1995, the Agency approved an agreement with a local utility company to advance the utility company $117,600 required to install water distribution mains within the Agency redevelopment area. The agreement was put on hold by the Agency and, as of September 18, 1998, the agreement continues to remain on hold. Note 13. Year 1000 Issue I I 1 I I I I I The Year 2000 issue is the result of shortcomings in many electronic data processing systems and other electronic equipment that may adversely affect the government's operations as early as fiscal year ending June 30, 1999. The City of Rosemead has completed an inventory of its in-house computer systems and other electronic equipment (i.e., irrigation systems, traffic signals, etc.) within City limits that may be affected by the Year 2000 issue and that are necessary to conducting the City's operations. Currently, the City is in the remediation stage in that bid specifications have been drawn up to purchase, from outside vendors, hardware and software believed to be Year 2000 compliant for the financial reporting systems. the City has budgeted $50,000 to obtain and implement a complete Year 2000 financial reporting system during the fiscal year ending June 30, 1999. Testing and validation of the systems will need to be completed after the hardware and software are installed. 27 I I 1 1 I 1 I I I O I SECTION II - SUPPLEMENTARY INFORMATION 0 B S CITY OF ROSEMEAD, CALIFORNIA SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS June 30, 1998 Catalog of Federal Domestic Program Assistance or Award Program Federal Grantor/Pass-through Grantor/Program Title Number Amount Expenditures U.S. Department of Housing and Urban Development: Community Development Block Grant Program - EntitlementGrants - LargeCities 14.218 $ 1,120,833 $ 1,120,833 U.S. Department of Justice: Community-oriented Policing Services 16.580 63,712 63,712 Local Law Enforcement Block Grant 16.592 86,640 86,640 $ 1,271,185 $ 1,271,185 28 I CITY OF ROSEMEAD, CALIFORNIA I NOTE TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS 1 Note 1. Basis of Persentation ' The accompanying schedule of expenditures of federal awards includes the federal grant activity of the City of Rosemead and is presented on the modified accrual basis of accounting. The information in this schedule is presented in accordance with the requirements of OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Therefore, some amounts presented in this schedule ' may differ from amounts presented in, or used in the presentation of, the general purpose financial statements. 1 I 1 F I C] 29 I ' SECTION III - COMPLIANCE MATTERS AND INTERNAL ACCOUNTING AND ADMINISTRATIVE CONTROLS I~ I J 1 1 1 i p 0 I 1 106 1 1 I I I I I S INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO THE MAJOR PROGRAM AND INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133 To the Honorable Mayor and Members of the City Council City of Rosemead Rosemead, California Compliance RSM international We have audited the compliance of the City of Rosemead, California, (the City) with the types of compliance requirements described in the U.S. Office of Management and Budget (OMB) Circular A-133 Compliance Supplement that are applicable to its major federal program for the year ended June 30, 1998. Rosemead's major federal program is identified in the summary of auditor's results section of the accompanying schedule of findings and questioned costs. Compliance with the requirements of laws, regulations, contracts and grants applicable to its major federal program is the responsibility of Rosemead's management. Our responsibility is to express an opinion on Rosemead's compliance based on our audit. We conducted our audit of compliance in accordance with generally accepted auditing standards; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about Rosemead's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination on Rosemead's compliance with those requirements. In our opinion, Rosemead complied, in all material respects, with the requirements referred to above that are applicable to its major federal program for the year ended June 30, 1998. Internal Control Over Compliance The management of Rosemead is responsible for establishing and maintaining effective internal control over compliance with requirements of laws, regulations, contracts and grants applicable to federal programs. In planning and performing our audit, we considered Rosemead's internal control over compliance with requirements that could have a direct and material effect on a major federal program in order to determine our auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with OMB Circular A-133. Suite 300 Worldwide 140 South Lake Avenue Services Pasadena, California 91101-2651 30 Through (626) 795-7950 FAX (626) 795-9820 RSM International McGLADREY&PULLEX LLP Certified Public Accountants and Consultants I 1 Our consideration of internal control over compliance would not necessarily' disclose all matters in ' internal control that might be material weaknesses. A material weakness is a condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that noncompliance with applicable requirements of laws, regulations, contracts and grants that would be material in relation to a major federal program being audited may occur and not be 1 detected within a timely period by employees in the normal course of performing their assigned functions. We noted no matters involving internal control over compliance and its operation that we consider to be material weaknesses. 1 This report is intended for the information of management of the City of Rosemead, California, the United States Department of Housing and Urban Development and the California State Controller's 1 Office (Division of Audits and Division of Local Government Affairs). However, this report is a matter of public record and its distribution is not limited. e 9' / P Pasadena, California 1 September 18, 1998 1 1 1 1 1 R I I 0 e 31 1 I M. MCertified cGLAbDREY&PU L LEN, Accountants and Consultants i RSM international ' INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE AND ON INTERNAL CONTROL OVER FINANCIAL REPORTING BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS To the Honorable Mayor and Members of the City Council City of Rosemead Rosemead, Califomia We have audited the financial statements of the City of Rosemead, California, (the City) as of and for the year ended June 30, 1998 and have issued our report thereon dated September 18, 1998. We conducted our audit in accordance with generally accepted auditing standards and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. ' Compliance ' As part of obtaining reasonable assurance about whether the City's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grants, noncompliance with which could have a direct and material effect on the ' determination of financial statement amounts. However, 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 one instance of noncompliance that is required to be reported under ' Government Auditing Standards which is described in the accompanying schedule of findings and questioned costs as item CF 97-1. I I I Internal Control Over Financial Reporting In planning and performing our audit, we considered the City's intemal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinion on the financial statements and not to provide assurance on intemal control over financial reporting. Our consideration of internal control over financial reporting would not necessarily disclose all matters in internal control over financial reporting that might be material weaknesses. A material weakness is a condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that misstatements in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. We note no matters involving intemal control over financial reporting and its operation that we consider to be material weaknesses as defined above. Suite 300 140 South LakeAvenue Pasadena, California 91101-2651 (626) 795-7950 FAX(626)795-9820 Worldwide Services Through 32 RSM International ' This report is intended for the information of management of the City of Rosemead, California, the ' United States Department of Housing and Urban Development and the California State Controller's Office (Division of Audits and Division of Local Government Affairs). However, this report is a matter of public record and its distribution is not limited. fd1z4 Pasadena, California ' September 18, 1998 I 33 1 1 1 1 1 CITY OF ROSEMEAD, CALIFORNIA SCHEDULE OF FINDINGS AND QUESTIONED COSTS Year Ended June 30, 1998 1. SUMMARY OF INDEPENDENT AUDITOR'S RESULTS Financial Statements Type of auditor's report issued: unqualified Internal control over financial reporting: Material weakness(es) identified? Yes X No Reportable condition(s) identified that are not considered to be material weaknesses? Yes X None Reported Noncompliance material to financial statements noted? X Yes No Federal Awards Internal control over major programs: Material weakness(es) identified? Yes X No Reportable condition(s) identified that are not considered to be material weakness(es)? Yes X None Reported Type of auditor's report issued on compliance for major programs: unqualified Any audit findings disclosed that are required to be reported in accordance with Section 510(a) of Circular A-133? Yes X No Identification of major programs: CFDA Number(s)' Name of Federal Program or Cluster 14.218 Community Development Block Grant Program - Entitlement Grants - Large Cities Dollar threshold used to disinguish between type A and type B programs $300,000 Auditee qualified as low-risk auditee? X Yes None Reported 34 ' CITY OF ROSEMEAD, CALIFORNIA ' SCHEDULE OF FINDINGS AND QUESTIONED COSTS, CONTINUED Year Ended June 30, 1998 ' II. FINDINGS RELATING TO THE FINANCIAL STATEMENT AUDIT AS REQUIRED TO BE REPORTED IN ACCORDANCE WITH GENERALLY ACCEPTED GOVERNMENT ' AUDITING STANDARDS A. Reportable Conditions in Internal Control ' There were no reportable conditions in internal control noted. ' B. Compliance finding (CF 97-1) Investments ' The City's investment portfolio at June 30, 1998 included investments in commercial paper and bonds that were purchased in prior years, which exceed the maximum term limit of five years required by the California Government Municipal Code. ' Section 536010) of the California Government Municipal Code states that cities are allowed to invest in corporate or medium-term notes with a maximum of five years from the date of ' purchase, that have a rating of at least "A" by Moody's. The result of having investments that are not in compliance with the California Government ' Municipal Code could cause the City's investment value to be at risk should market interest rates become less stable. ' The Condition, which originated in prior years, was caused by the City's management and investment advisor being unaware of the investment requirements of the California Government Municipal Code prior to purchasing the investments. ' At June 30, 1997, we recommended that the City design procedures to ensure that all future investments are in compliance with the California Government Municipal Code. The City ' has since implemented procedures to ensure that investments purchased adhere to the California Government Municipal Code Section 536010). ' III. FINDINGS AND QUESTIONED COSTS FOR FEDERAL AWARDS None. I 35 1 CITY OF ROSEMEAD, CALIFORNIA ' CORRECTIVE ACTION PLAN Year Ended June 30, 1998 ' Finding 97-1 1 I MAYOR: ROBERT 11 BRVESCI, MAYOR PRO TEM: JOE VAEOOEZ COIINO LMEMBERS: MA POPPET CLARK JAYT. IMPERIAL GARYA. TAYLOR POseoicad 8838 E VALLEY BOULEVARD - PO. BOX 399 ROSEMEAD. CALIFORNIA 91770 TELEPHONE 16261 288 6671 FAX (626) 307-9218 I December 30, 1998 Mr. Jeff M. Altshuler ' McGladrey & Pullen, LLP 140 South Lake Avenue Suite 300 ' Pasadena, CA 91101-2651 RE: City's Corrective Action Plan ' Dear Mr. Altshuler: Per you request, the following paragraphs will outline the City's approach to eliminate Fiscal ' Year 1997-98 Compliance finding (CF 97-1), investment in commercial paper and bonds that exceeds the five-year maturities limit as required by the California Government Municipal Code. The City Treasurer has been directed to sell those investments with maturities exceeding the ' five-year limit when the investments can be liquidated at no loss. Further, the City Treasurer has been instructed to invest in instruments not exceeding a maturity ' of five-years. If you have any further questions, please feel free to call me at (626) 288-6671. ' Sincerely, CITY OF ROSEMEAD ' Frank G. Tripepi City Manager I 36 I CITY OF ROSEMEAD, CALIFORNIA ' SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS Year Ended June 30, 1998 ' The prior year single audit disclosed no significant findings and no significant uncorrected or unresolved findings related to federal awards. 1 I 1 1 I 37