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1997 City Compliance ReportsL I 1 I I CITY OF ROSEMEAD, CALIFORNIA FINANCIAL AND COMPLIANCE REPORT NNE 30, 1997 I I 1 I I I I I I I I I rrr-i 4-J I C1 I I I 0 0 P CONTENTS SECTION I - FINANCIAL STATEMENTS INDEPENDENT AUDITOR'S REPORT ON THE GENERAL PURPOSE FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION 1 and 2 Combined balance sheet - all fund types and account groups 3 and 4 Combined statement of revenue, expenditures and changes in fund balances - all governmental fund types 5 and 6 Combined statement of revenue, expenditures and changes in fund balances - budget and actual - general, special revenue, debt service and capital projects funds 7-9 Statement of revenue, expenses and changes in fund balance - Pension Trust Fund 10 Statement of cash flows - Pension Trust Fund 1 I Notes to financial statements 12-29 SECTION H - SUPPLEMENTARY INFORMATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS 30 SCHEDULE OF FINDINGS AND QUESTIONED COSTS 31 and 32 CORRECTIVE ACTION PLAN 33 SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS 34 SECTION III - COMPLIANCE MATTERS AND INTERNAL ACCOUNTING AND ADMINISTRATIVE CONTROLS 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 35 and 36 Compliance and on internal control over financial reporting based on an audit of financial statements performed in accordance with Government Auditing Standards 37 and 38 I A I I `J 1 I I U D SECTION I - FINANCIAL STATEMENTS I 1 `I. i 1 D LJ 1 1 1 I I I LJ I 1 McGLADREY&PULLEX LLP Certified Public Accountants and Consultants 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 RSM international We have audited the accompanying general purpose financial statements of the City of Rosemead, California, as of and for the year ended June 30, 1997. These general purpose financial statements are the responsibility of the City's management. Our responsibility is to express an opinion on these general 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 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, 1997, 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 30, 1997, 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. Suite 300 140 South Lake Avenue Pasadena, California 91101-2651 (818) 795-7950 FAX(818)795-9820 Worldwide Services Through RSM International I 1 I 1 11 1 Our audit was made for the purpose of forming an opinion on the general purpose financial statements taken as a whole. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analyses as required by U.S. Office of Management and Budget Circular A-133, Audits of State, 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. ' Pasadena, California September 30, 1997 1 1 1 1 I 1 I 1 1 1 1 2 CITY OF ROSEMEAD, CALIFORNIA COMBINED BALANCE SHEET - ALL FUND TYPES AND ACCOUNT GROUPS June 30, 1997 Assets and Other Debits Assets Cash and investments Receivables Due from other funds Property and equipment Prepaid expenses 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 General $ 10,207,644 1,220,124 29,736 920 Governmental Fund Type Special Debt Revenue Service $ 6,119,855 421,198 $ 2,344,420 11,193 1 I Capital , Proiects $ 18,687,263 ' 549,233 1,634 $ 11,458,424 $ 6,541,053 $ 2,355,613 $ 19,238,130 Liabilities Accounts payable and accrued liabilities $ 1,451,976 $ 424,111 $ $ 198,766 Arbitrage rebate payable - - - Due to other funds - 31,370 Deferred revenue - 246,682 Refundable deposits - Deferred compensation - Tax allocation notes and bonds - Accrued vacation pay and compensatory time 7,703 Accrued litigation settlement - Total liabilities 1,459,679 702,163 198,766 Municipal Equity and Other Credits Investment in general fixed assets - ' Fund balance: Reserved: Long-term receivable 717,796 - - - ' Debt service - - 2,355,613 Low-moderate income housing - 4,251,917 - Employees retirement - - - - ' Unreserved: Designated for: Capital projects - - - 19,039,364 Building and equipment replacement 1,720,000 - - - , Litigation settlements 1,000,000 - - Self-insurance 300,000 - Contingencies 3,000,000 - ' Undesignated 3,260,949 1,586,973 - Total municipal equity and other credits 9,998,745 5,838,890 2,355,613 19,039,364 Total liabilities, municipal equity and r other credits $ 11,458,424 $ 6,541,053 $ 2,355,613 $ 19,238,130 See Notes to Financial Statements. , 3 i ' ' Fiduciary Fund Types Account Groups Total (Memorandum Only) General ' Trust and General Long-term Agency Fixed Assets Debt 1997 1996 $ 825,592 $ $ $ 38,184,774 $ 35,744,155 ' 2,201,748 2,692,497 31,370 769,465 ' 13,256,131 13,256,131 920 13,074,309 2,355,613 2,355,613 2,355,343 ' - - 33,923,171 33,923,171 34,217,633 $ 825,592 $ 13,256,131 $ 36,278,784 $ 89,953,727 $ 88,853,402 $ $ $ $ 2,074,853 $ 1,928,939 ' _ 180,000 31,370 769,465 246,682 244,663 95,568 95,568 86,228 ' 517,848 517,848 625,630 - 35,905,000 35,905,000 36,185,000 297,011 304,714 277,195 76,773 76,773 112,347 613,416 - 36,278,784 39,252,808 40,409,467 1 - 13 256 131 - 13 256 131 13 074 309 , , , , , , - - 717,796 687,269 2,355,613 2,355,343 - - - 4,251,917 3,967,172 212,176 - - 212,176 226,085 - - 19,039,364 19,008,754 1,720,000 1,720,000 - - 1,000,000 750,000 - - 300,000 280,000 D 3,000,000 2,680,000 4,847,922 3,695,003 212,176 13,256,131 - 50,700,919 48,443,935 $ 825,592 $ 13,256,131 $ 36,278,784 $ 89,953,727 $ 88,853,402 a ' 4 CITY OF ROSEMEAD, CALIFORNIA COMBINED STATEMENT OF REVENUE, EXPENDITURES AND CHANGES IN FUND BALANCES - ALL GOVERNMENTAL FUND TYPES Year Ended June 30,1997 Governmental Fund 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 Capital outlay Debt service: Principal Interest Arbitrage rebate expenditure Revenue over (under) expenditures Other Financing Sources (Uses) Operating transfers: From other funds (To) other funds Revenue and other financing sources over (under) expenditures and other financing (uses) Fund Balance, beginning Fund Balance, ending See Notes to Financial Statements. General Special Debt Revenue Service Capital Projects $ - $ 382,609 $ $ 2,845,775 3,952,511 - 760,037 - 3,860,776 3,672,184 576,033 8,000 276,281 87,657 - 568,410 422,877 135,601 1,288,447 30.921 3.398 - 28,943 1,812,609 190,748 50,250 4,561,894 360,303 - 47,007 2,543,754 758,811 45,966 - - 2,144,066 - 1,014,080 962,885 47,683 - 280,000 1,991,333 9,673,305 4,057,690 2,271,333 809,061 351.664 519,035 (2,135,732) 3,354,104 1,097,300 443,439 2,136,002 - , !S7 7d7\ rtnn nool - 0 'i93 4941 1,3955717 662,474 270 30,610 8,603,028 5,176,416 2,355,343 19,008,754 , $ 9,998,745 $ 5,838,890 $ 2,355,613 $ 19,039,364 ' i ' 5 , a~ I ' Total (Memorandum Only) 1997 1996 $ 3,228,384 $ 3,037,093 ' 3,952,511 3,664,031 760,037 760,191 7,532,960 6,155,519 ' 584,033 539,055 363,938 365,400 2,415,335 2,667,346 63,262 138,159 ' 18,900,460 17,326, 794 2,053,607 1,946,848 4,922,197 4,733,426 3,349,572 3,788,669 45,966 44,863 2,144,066 1,869,684 ' 1,976,965 47,683 1,867,352 119,184 280,000 265,000 ' 1,991,333 2,006,154 180,000 16,811,389 16,821,180 2,089,071 505,614 ' 3,676,741 3,516,417 (3,676,741) (3,516,417) 2,089,071 505,614 35,143,541 34,637,927 $ 37,232,612 $ 35,143,541 I I 1 6 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 Year Ended June 30, 1997 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 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. General Actual Over (Under) Revenue Actual $ - $ - $ - $ 360,000 $ 382,609 3,884,050 3,952,511 68,461 - - 738,100 760,037 21,937 - - 3,338,900 3,860,776 521,876 5,554,680 3,672,184 554,035 576,033 21,998 8,000 8,000 281;500 276,281 (5,219) 60,000 87,657 365,200 568,410 203,210 288,300 422,877 71,750 30,921 (40,829) 5,300 3,398 9,233,535 10,024,969 791,434 6,276,280 4,576,725 2,092,700 1,812,609 (280,091) 620,800 190,748 4,689,299 4,561,894 (127,405) 359,350 360,303 96,640 47,007 (49,633) 5,155,410 2,543,754 48,000 45,966 (2,034) - - 2,181,990 2,144,066 (37,924) - - 1,072,100 1,014,080 (58,020) 1,138,720 962,885 17,611 - (17,611) - - 4,500 47,683 43,183 10,202,840 9,673,305 (529,535) 7,274,280 4,057,690 (969,305) 351,664 1,320,969 (998,000) 519,035 1,097,300 (91.420 $ 36,575 1,097,300 - 701,420 (53,247) 38,173 (760,000 1,395,717 $ 1,359,142 $ (1,056,580) R 6M mu $ 9,998,745 7 443,439 (300,000) 143,439 662,474 5,176,416 $ 5,838,890 Special Revenue Debt Service Capital Projects ' Over (Under) Over (Under) Over (Under) Budget Budget Actual Budget Budget Actual Budget ' $ 22,609 $ $ $ $ 3,300,000 $ 2,845,775 $ (454,225) ' (1,882,496) 27,657 - - - ' 134,577 (1,902) 130,000 135,601 5,601 441,571 1,288,447 28,943 846,876 28,943 (1,699,555) 130,000 135,601 5,601 3,741,571 4,163,165 421,594 ' 50 250 350 ` (430,052) - - - 49,900 , 953 - - ; (2,611,656) 7,028,200 758,811 (6,269,389) (175,835) ' 2 500 _ _ 2,500 , ) ( 280,000 280,000 _ ' 1,998,613 1,991,333 (7,280) (3,216,590) 2,278,613 2,271,333 (7,280) 7,080,600 809,061 (6,271,539) 133 1,517,035 (2,148,613) (2,135,732) 12,881 (3,339,029) 3,354,104 6,693, (257,981) 2,278,613 2,136,002 (142,611) 460,000 - - (3,225,913) (3,323,494) (97,581) 202,019 2,278,613 2,136,002 (142,611) (3,225,913) (3,323,494) (97,581) $ 1,719,054 $ 130,000 270 $ (129,730) $ (6,564,942) 30,610 $ 6,595,552 2,355,343 19,008,754 $ 2,355,613 $ 19,039,364 ' 8 CITY OF ROSEMEAD, CALIFORNIA I ll 1 I I I 0 I I 1 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, 1997 Total (Memorandum Only) Over (Under) Revenue Budget Actual Budget Property taxes and special assessments $ 3,660,000 $ 3,228,384 $ (431,616) Othertaxes 3,884,050 3,952,511 68,461 Licenses and permits 738,100 760,037 21,937 Intergovernmental 8,893,580 7,532,960 (1,360,620) Charges for services 562,035 584,033 21,998 Fines, forfeitures and penalties 341,500 363,938 22,438 Use of money and property 1,225,071 2,415,335 1,190,264 Other 77,050 63,262 (13,788) 19,381,386 18,900,460 (480,926) Expenditures Current: General government 2,763,400 2,053,607 (709,793) Public safety 5,048,649 4,922,197 (126,452) Public works 12,280,250 3,349,572 (8,930,678) Public health 48,000 45,966 (2,034) Public recreation 2,181,990 2,144,066 (37,924) Community service 2,210,820 1,976,965 (233,855) Appropriations reserves 17,611 - (17,611) Capital outlay 7,000 47,683 40,683 Debt service: Principal 280,000 280,000 - Interest 1,998,613 1,991,333 (7,280) 26,836,333 16,811,389 (10,024,944) Revenue over (under) expenditures (7,454,947) 2,089,071 9,544,018 Other Financing Sources (Uses) Operating transfers: From other funds 4,077,333 3,676,741 (400,592) (To) other funds (4,077,333) (3,676,741) 400,592 Revenue and other financing sources over (under) expendi- tures and other financing (uses) $ (7,454,947) 2,089,071 $ 9,544,018 Fund Balance, beginning Residual Equity Transfer 35,143,541 Fund Balance, ending $ 37,232,612 See Notes to Financial Statements. 9 CITY OF ROSEMEAD, CALIFORNIA ' NCE PENSION TRUST FUND - STATEMENT OF REVENUE, EXPENSES AND CHANGES IN FUND BALA Year Ended June 30, 1997 h i t t i i d 469 $ 10 er nves men ncome Operating revenue, nterest an ot , ' Operating expenses: Administrative fees 3,659 Pension benefits 20,719 ' 24,378 Net (loss) (13,909) ' innin F d balance be 226 085 g un , g , ' Fund balance, ending $ 212,176 ' See Notes to Financial Statements. ' 10 CITY OF ROSEMEAD, CALIFORNIA ' STATEMENT OF CASH FLOWS - PENSION TRUST FUND Year Ended June 30, 1997 1 Cash Flows from Operating Activities Net (loss) $ (13,909) Adjustments to reconcile net (loss) to net cash (used in) operating activities: Administrative expenses payable 3,659 Unrealized interest and investment income (10,469) Net cash (used in) operating activities (20,719) Cash Flows Provided by Investing Activities ' Proceeds from the sale and maturity of annuity contracts Net increase in cash and cash equivalents ' Cash, beginning ' Cash, ending ' See Notes to Financial Statements. 11 20,719 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 ' 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 are 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. t 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. I U 1 12 I I I I 1 I I I 0 0 I 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: 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. 13 I The Agency finds are custodial in nature and do not present results of operations or have a measurement 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 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 t 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: t 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. 14 I I I I II 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 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. The Rosemead Housing Development Corporation accounts for the construction and financing of low and moderate income housing. It is a California 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 Rosemead Redevelopment Agency. 1 1 I I I I 0 I 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 Funds account 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 and deferred compensation plans for qualified employees. The Agency funds are custodial in nature and do not present results of operations or have a measurement focus. Agency funds are refundable deposits and deferred compensation. 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. 15 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 O The following is a summary of significant accounting policies: Cash investments and other investments 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. All investments are stated at cost or amortized cost except those of the Deferred Compensation Plan and Pension Trust Fund, which are stated at market value. Investment earnings are allocated based on the source of funds. Receivables Property taxes attach as an enforceable lien on property as of March 1. 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. 0 16 I 1 I I I 0 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 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 considered to be vested and are paid to the employee based on a vesting schedule. In addition, employees can accrue compensatory time. The vested portion of vacation and sick leave by employees at June 30, 1997 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 "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 1996 totals presented in the "Memorandum Only" columns are included to provide a ' summarized comparison with comparable 1997 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. Certain revenue for the year ended June 30, 1996 has been reclassified, with no effect on net revenue over expenditures, to be consistent with the classifications adopted for the fiscal year ended June 30, 1997. I 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. a 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 goveming 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. 17 LJ I !II, I CITY OF ROSEMEAD, CALIFORNIA NOTES TO FINANCIAL STATEMENTS Note 3. Cash and Investments The components of cash and investments at June 30, 1997 are as follows: Cash in bank $ 2,323,768 Time certificates of deposit 2,961,784 Cash subtotal 5,285,552 Other investments 4,313,873 Cash with fiscal agent 2,344,420 Guaranteed investment contracts 11,009,930 Investment in State Treasury's Investment Pool 14,500,975 Investment in annuity contracts 730,024 Investments subtotal 32,899,222 Cash and investments total $ 38,184,774 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 $5,285,552 and the bank balance was $5,393,285. Of the $5,393,285 bank balance, $611,819 was covered by federal depository insurance, and $4,781,466 was uninsured and uncol lateral ized. In accordance with State statutes, the 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 1 10% 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 Agency'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 a based on a formula that takes into consideration each fund's average investment in the pool. Investments 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, repurchase agreements, commercial paper and bonds, registered warrants or treasury notes of the State of California and its local agencies. 18 CITY OF ROSEMEAD, CALIFORNIA NOTES TO FINANCIAL STATEMENTS I Note 3. Cash and Investments, Continued Investments include cash with fiscal agent for $2,344,420, which is invested in a guaranteed investment contract which accrues interest monthly at an interest rate of 5.8%, maturing October 1, 2013. Investments in annuity contracts included $212,176 and $517,848 invested in the Pension Trust Fund and Deferred Compensation Plan, respectively. These investments were carried at market value. Investments also included $11,009,930 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. Other investments are categorized in the following schedule to give an indication of the level of risk assumed by the entity at year end. Category Carrying Market Investment Type 1 2 3 Amount Value U.S. government and government agency ' securities $ $ $ 2,464,268 $ 2,464,268 $ 2,511,910 State and municipal bonds 657,570 657,570 679,691 Commercial paper and bonds 1,192,035 1,192,035 1,104,390 $ $ $ 4,313,873 4,313,873 4,295,991 Cash with fiscal agent 2,344,420 2,344,420 Guaranteed Investment Contracts 11,009,930 11,332,740 Investment in State Treasurer's Investment Pool 14,500,975 14,500,975 Investment in annuity contracts 730,024 730,024 Total other investments $ 32,899,222 $ 33,204,150 The three preceding risk description categories are defined as follows: a Category Description 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. 19 I I CITY OF ROSEMEAD, CALIFORNIA NOTES TO FINANCIAL STATEMENTS E Note 4. Receivables Receivables as of June 30, 1997 consist of the following: Special Capital General Revenue Debt Service Projects Total Property tax increment $ - $ - $ - $ 232,540 $ 232,540 Accrued interest 142,734 40,694 11,193 316,693 511,314 Due from local utility companies (A) 631,399 631,399 Due from other governmental agencies 171,097 380,504 - - 551,601 Transient occupancy tax 200,452 200,452 Other 74,442 74,442 $ 1,220,124 $ 421,198 $ 11,193 $ 549,233 $ 2,201,748 " 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. During the year ended June 30, 1994, the Agency approved an additional reimbursement agreement with a local utility company, advancing the utility company funds required 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. I J 20 ' I M I I I I I I 1 I Changes in property and equipment during the year ended June 30, 1997 were as follows: CITY OF ROSEMEAD, CALIFORNIA NOTES TO FINANCIAL STATEMENTS Note S. Interfund Receivables and Payables Interfund receivables and payables as of June 30, 1997 are as follows: Funds General Fund Special Revenue Funds: Traffic safety Local Transportation Fund Public Transportation Funds Community Development Block Grant Capital Projects Fund Note 6. Property and Equipment Interfund Receivables Payables $ 29,736 $ - 2,468 - 6,529 - 11,469 - 10,904 - 31,370 1,634 $ 31,370 $ 31,370 Balance, Balance, June 30, 1996 Acquisitions Disposals June 30, 1997 ' Land $ 4,730,565 $ - $ _ $ 4,730,565 Buildings and improvements 5,617,201 24,491 5,641,692 Vehicles 252,264 - - 252,264 ' Furniture and office equipment 1,126,272 72,462 - 1,198,734 Special equipment and machinery 495,415 70,790 566,205 Other improvements 852,592 14,079 - 866,671 $ 13,074,309 $ 181,822 $ - $ 13,256,131 ' Note 7. Employee Pension Plans ' 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 (PERS). The value of the annuity contract for retired employees was $212,176 as of June 30, 1997. ' 21 I C CITY OF ROSEMEAD, CALIFORNIA NOTES TO FINANCIAL STATEMENTS O Note 7. Employee Pension Plans, Continued Effective November 1, 1992, the City became a member of PERS, an agent multiple-employer public employee retirement system that acts as a common investment and administrative agent for cities in the State. The City's payroll for employees covered by PERS for the calendar year ended December 31, 1996 was $1,144,905 and total payroll was $1,736,935. All full-time City employees are eligible to participate in PERS. Benefits vest after five years of service. City employees who retire at or after age 60 with five years of credited service are entitled to an annual retirement benefit, payable monthly for life. Retirement benefits are calculated using a formula which multiplies years of credited service by a sliding scale (based on age) by the employee's highest annual salary during service. PERS also provides death and disability benefits to participating employees. ' Benefit provisions and all other requirements are established by State statute and City ordinance. Employees are required to contribute 7% of their salary to the plan. The City contributes the employee's portion as well as the remaining contribution requirement required to fund the plan. PERS has in its investments no securities in the form of bonds, notes, leases receivable, loans or any ' other instrument representing debt of the City or any of the other governments included as part of the City's reporting entity, or any parties related to the City or the other governments included as part of the City's reporting entity. 1 I 11 Funding status and progress: The amount shown as the pension benefit obligation is a standardized disclosure measure of the present value of pension benefits, adjusted for the effects of projected salary increases and step-rate benefits, estimated to be payable in the future as a result of employee service to date. The measure is intended to help users assess the funding status of the system on a going concern basis, assess progress made in accumulating sufficient assets to pay benefits when due, and make comparisons among employers. The measure is the actuarial present value of credited projected benefits and is independent of the funding method used to determine contributions to the system. The total PERS pension benefit obligation was computed as of June 30, 1996 as part of an actuarial valuation performed. Significant actuarial assumptions used to determine the pension benefit obligation include: • A rate of return on the investment of present and future assets of 8.5% per year compounded annually. • Projected salary increases of 4.5% per year compounded annually, attributable to inflation. • No increases attributable to seniority/merit. • No postretirement benefit increases. 1 22 I O 1 1 I rJ 1 I I 1 I 1 I CITY OF ROSEMEAD, CALIFORNIA NOTES TO FINANCIAL STATEMENTS Note 7. Employee Pension Plans, Continued A comparison of the pension benefit obligation applicable to the City's employees with the plan assets as of June 30, 1996 is as follows: Pension benefit obligation: Retirees and beneficiaries receiving benefits and terminated employees not yet receiving benefits Current employees: Accumulated employee contributions including allocated investment earnings Employer-financed, vested Employer-financed, nonvested Total pension benefit obligation Net assets available for benefits, at cost (market value $2,472,126) Overfunded pension benefit obligation Actuarially determined contribution requirements and contribution made 2,299,076 2,302,007 $ (2,931) PERS uses the Entry Age Normal Actuarial Cost Method, which is a projected benefit cost method. That is, it takes into account those benefits that are expected to be earned in the future as well as those already accrued. According to this cost method, the normal cost for an employee is the level amount which would fund the projected benefit if it were paid annually from date of employment until retirement. PERS uses a modification of the Entry Age Cost Method in which the employer's total normal cost is expressed as a level percentage of payroll. PERS also uses the level percentage of payroll method to amortize any unfunded actuarial liabilities. The amortization period of the unfunded actuarial liability is not longer than 30 years for contracting public agencies. The significant actuarial assumptions used to compute the actuarially determined contribution requirement are the same as those used to compute the pension benefit obligation as described earlier in this Note. 23 382,165 $ 326,607 1,575,896 14,408 1,916,911 I I CITY OF ROSEMEAD, CALIFORNIA NOTES TO FINANCIAL STATEMENTS I Note 7. Employee Pension Plans, Continued The contribution to the plan for the fiscal year ended June 30, 1997 totaling $184,622 was made in accordance with actuarially determined requirements computed through an actuarial valuation performed as of June 30, 1996. The contribution consisted of Normal cost (4.717% of current covered payroll) $ 61,230 Amortization of the unfunded actuarial accrued liability (10.405% of current covered payroll) 123,392 $ 184,622 Amounts contributed on behalf of City (8.122% of current covered payroll) $ 98,574 Employees (7% of current covered payroll) 86,048 ' $ 184,622 Trend information Trend information gives an indication of the progress made in accumulating sufficient a ssets to pay ' benefits when due. Historical information for the last available three years is as follows: Unfunded (Overfunded) Pension Contribu- Benefit Obli- tion to gation as System as I Unfunded (Over- Percentage Percentage of ~ Year Net Assets funded) Pension of Covered Covered Ended Available Pension Benefit Percentage Benefit Annual Covered Annual Annual June 30 for Benefits Obligation Refunded Obligation Payroll Payroll Payroll ' 1994 $ 1,580,000 $ 1,814,350 87.1 % $ 234,340 $ 1,301,610 18.0 % 15.491 % 1995 1,882,390 2,021,200 93.1 138,815 1,331,870 10.4 15.491 1996 2,302,000 2,299,070 100.1 2,931 1,330,160 (0.2) 15.491 Showing unfunded pension benefit obligation as a percentage of annual covered payroll approximately ' adjusts for the effects of inflation for analysis purposes. Ten-year historical trend information showing the System's progress in accumulating suffici ent assets to pay benefits when due is presented in the System's June 30, 1997 comprehensive annual fina ncial report. I I 24 I I I 8 CITY OF ROSEMEAD, CALIFORNIA NOTES TO FINANCIAL STATEMENTS Note 8. Deferred Compensation Agreements The City has a deferred compensation plan which is organized under Internal Revenue Code 457. The plan allows eligible employees to defer a portion of their gross income to future years not to exceed the lesser of $7,500 or 25% of the participant's includible compensation. The deferred compensation is not available to employees until termination, retirement, death or unforeseeable emergency. The deferred compensation and accumulated earnings thereon totaled $517,848 at June 30, 1997. The deferred compensation plan is fully funded by the City as the deferred compensation is earned by the employees. Plan assets and the related liability to employees are accounted for in an agency fund at the current market value of the annuity contracts and time certificates of deposit. All amounts of compensation deferred under the plan, all property and rights purchased with those amounts, and all income attributable to those amounts, property or rights are (until paid or made available to the employee or other beneficiary) solely the property and rights of the City (without being ' restricted to the provisions of benefits under the plan), subject only to the claims of the City's general creditors. Participants' rights under the plan are equal to those of general creditors of the City in an amount equal to the fair market value of the deferred account for each participant. t The City has no liability for losses under the plan, but does have the duty of due care that would be required of any ordinary prudent investor. The administrative and reporting functions of the plan are I being handled by an insurance company 1 I H 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 of Rosemead 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 of Rosemead, 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. 1 25 I 1 I I D 0 1 L 1 I CITY OF ROSEMEAD, CALIFORNIA NOTES TO FINANCIAL STATEMENTS 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 proceeds, 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 on or after October 1, 2033, and Series 1993B bonds mature on or after 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. Compensated absences That portion of the liability for the vested compensated absences totaling $297,011 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, 1997: Accrued Tax Allocation Tax Allocation Vacation and Bonds Series Bonds Series Litigation Compensatory 1993A 1993B Settlement Time Total Balance, June 30, 1996 $ 34,275,000 $ 1,910,000 $ 112,347 $ 275,629 $ 36,572,976 Payments of principal - (280,000) - - (280,000) Additions 21,382 21,382 Reductions in settlement - - (35,574) - (35,574) Balance, June 30, 1997 $ 34,275,000 $ 1,630,000 $ 76,773 $ 297,011 $ 36,278,784 26 C~ I as follows: CITY OF ROSEMEAD, CALIFORNIA NOTES TO FINANCIAL STATEMENTS Note 10. Long-term Debt, Continued The annual requirements, principal and interest to amortize the outstanding debt as of June 30, 1997 are During the Year Ending June 30, C 1 I Accrued Series 1993 Vacation and A and B Litigation Compensa- Bonds Settlement tory Time Interest Total 1998 $ 295,000 $ 37,666 $ 297,011 $ 1,989,427 $ 2,619,104 1999 310,000 39,107 - 1,971,450 2,320,557 2000 330,000 - - 1,951,663 2,281,663 2001 345,000 - - 1,932,853 2,277,853 2002 370,000 - - 1,912,843 2,282,843 Years thereafter 34,255,000 - - 39,846,587 74,101,587 $ 35,905,000 $ 76,773 $ 297,011 $ 49,604,823 $ 85,883,607 Defeasance of prior 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, 1997, $16,470,000 is considered defeased, consisting of $9,660,149 of bonds outstanding and $6,809,851 of interest. 27 1 CITY OF ROSEMEAD, CALIFORNIA t NOTES TO FINANCIAL STATEMENTS Note]]. Budget Overexpenditures and Deficit Expenditures exceeded Appropriations for the year e nded June 30, 1997 in the following departments: Amount of Over- ' Appropriations Expenditures expenditures General Fund Travel and meetings $ 26,000 $ 27,841 $ 1,841 ' City council 64,380 64,767 387 City treasurer 12,000 12,059 59 City garage 36,200 45,055 8,855 ' Animal regulation 50,000 67,934 17,934 Parking control 114,400 117,359 2,959 Crossing guard 86,070 90,867 4,797 ' Narcotics forfeiture - 110 110 Street and highway construction 8,939 8,939 Recreation 577,270 594,279 17,009 Building regulation 449,300 458,867 9,567 ' Community improvements 93,940 105,809 11,869 Capital outlay 4,500 47,683 43,183 Traffic Safety Fund ' Public safety 60,000 87,657 27,657 Air Quality Management District Fund Community Service 3,800 3,815 15 ' 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 the set-aside requirement amounts incurred June 30, 1986 through June 30, 1991 and during the fiscal years ended June 30, 1994, 1995 and 1996 are allowed to be deferred until the fiscal year ended June 30, 2023 as a result of a housing deficit repayment plan devised by the Agency as required by law. As of June 30, 1997, the ' accumulated set-aside amount not yet funded was approximately $4,947,000. Litigation The City was a defendant in a lawsuit along with 13 other cities, the County of Los Angeles, five county garbage collection districts and the State of California for reimbursement of landfill cleanup costs of ' hazardous waste dumped between 1948 and 1984. The plaintiffs claimed that the cities either accepted for transport or arranged for disposal or treatment of municipal waste which contained hazardous materials. The plaintiffs also claimed that these materials have been released from the landfill into the environment. ' 28 C CITY OF ROSEMEAD, CALIFORNIA NOTES TO FINANCIAL STATEMENTS I Note 12. Commitments and Contingent Liabilities, Continued The City and the plaintiffs reached a settlement of the above referenced matter for $946,726. The City's insurers have agreed to pay $447,467, with the City paying the balance of $499,259. Of this amount, $300,000 was deposited in an escrow account in January 1994. The remaining amount of $199,259 will be paid over the next five years with interest at various rates not to exceed 5%. The present value of the ' remaining payments as of June 30, 1997 was $76,773. This amount is included in the City's long-term debt account group as of June 30, 1997. ' In addition, the City enacted a user fee, imposed on residential and commercial refuse bills, to help offset the settlement. ' In late July 1995, the 13 cities involved in the above litigation received a claim for indemnity. The Fortune 500 companies who utilized the landfill are now being sued for traditional tort damages to their persons and property. The Fortune 500 companies have in turn filed claims with the 13 cities asserting ' that, if they are liable, then the cities are proportionately liable up to an aggregate total of $3,000,000 for claims in excess of $40,000,000. The cities negotiated a settlement agreement with the homeowners plaintiffs which requires the cities, including the City of Rosemead, to pay an aggregate total of ' $300,000, approximately $11,500 per city. The settlement calls for the homeowners to indemnify the cities against any liability to the industrial defendants and/or to dismiss these defendants. The settlement has been approved by the court and signed by all counsel and all but one homeowner family. The City ' expects the remaining family will sign very soon. 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 30, 1997, the agreement continues to remain on hold. ' Note 13. Pronouncement Issued but Not Yet Adopted ' In November 1994, the Governmental Accounting Standards Board (GASB) issued Statement of Governmental Accounting Standards No. 27, Accounting for 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. Statement No. 27 is required to be adopted for years beginning after June 15, 1997. The City has not completed its assessment of the effect that the adoption of Statement No. 27 will have on its financial statements. ' In January 1997, the GASB issued Statement of Governmental Accounting Standards No. 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools. This Statement t establishes new financial reporting standards for investments held by government external investment pools, interest-earning investment contracts, open-end mutual funds and debt and equity securities. Statement No. 31 is required to be adopted for years beginning after June 15, 1997. The effect of adopting this Statement would have been to increase investments and fund balance by approximately $305,000 at June 30, 1997. ' 29 LJ LJ 1 ~l 1 1 1 0 1 I SECTION II - SUPPLEMENTARY INFORMATION e O 1 CITY OF ROSEMEAD, CALIFORNIA SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS June 30, 1997 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 - Entitlement Grants - Large Cities 14.218 $ 1,578,887 $ 1,578,887 U.S. Department of Justice: Community-oriented Policing Services 16.580 82,239 82,239 Local Law Enforcement Block Grant 16.592 143,000 143,000 $ 1,804,126 $ 1,804,126 30 CITY OF ROSEMEAD, CALIFORNIA SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 1997 1. SUMMARY OF INDEPENDENT AUDITOR'S RESULTS A. Type of report issued on the financial statements The Independent Auditor's Report on the general purpose financial statements of the City of Rosemead, California as of and for the year ended June 30, 1997 was an unqualified opinion. B. Reportable conditions and internal control disclosed by the audit of the financial statements The audit of the general purpose financial statements of the City of Rosemead, California, as of and for the year ended June 30, 1997, disclosed no matters involving the internal control over financial reporting and its operations that are considered to be material weaknesses. ' C. Noncompliance material to the financial statements The audit disclosed one instance of noncompliance which is material to the general purpose ' financial statements of the City of Rosemead, California as of and for the year ended June 30, 1997. 1 I I D. Reportable conditions in internal control over major programs The audit of compliance of the City of Rosemead, California, for the year ended June 30, 1997, disclosed no matters involving the internal control over major programs that are considered to be material weaknesses. E. Type of report issued on compliance for major programs The Independent Auditor's Report on compliance with requirements applicable to each major federal program for the year ended June 30, 1997 was an unqualified opinion. F. Findings related to major programs As indicated in Section III below, the audit disclosed no finding relating to major programs. G. Major programs CFDA Number Name of Federal Program Amount Expended Community Development Block Grant Program - 14.218 Entitlement Grants - Large Cities $ 1,578,887 31 I CITY OF ROSEMEAD, CALIFORNIA SCHEDULE OF FINDINGS AND QUESTIONED COSTS, CONTINUED Year Ended June 30, 1997 H. Threshold for distinguishing between Type A am/Type B programs The threshold for distinguishing between Type A and Type B programs was $300,000 for the year ended June 30, 1997. 1. Qualification of auditee as a low-risk auditee The City of Rosemead, California, did not qualify as a low-risk auditee under applicable t provisions of OMB Circular No. A-133, for the year ended June 30, 1997. 11. FINDINGS RELATING TO THE FINANCIAL STATEMENT AUDIT AS REQUIRED TO BE REPORTED IN ACCORDANCE WITH GENERALLY ACCEPTED GOVERNMENT AUDITING STANDARDS A. Compliance finding (CF 97-1) Investments t The City's investment portfolio at June 30, 1997 included investments in commercial paper and bonds 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 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. ' We recommend that the City design procedures to ensure that all future investments are in compliance with the California Government Municipal Code. t 111. FINDINGS AND QUESTIONED COSTS FOR FEDERAL AWARDS 1 None. I 32 I I CORRECTIVE ACTION PLAN CITY OF ROSEMEAD, CALIFORNIA Year Ended June 30, 1997 1 Finding 97-1 MAYOR: JAY i RAPER:L MAYOR'E. iEM'. ROBERT w sRUESCR COUNCILMEM9ERS: MARGARET CLARK GARY A. TAYLOR JOE VASOUEZ 1997 December 1 ' , 1 i 1 I 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. lt( , Poscmead 8838 E. VALLEY BOULEVARD • P.O. BOX 399 ROSEMEAD. CALIFORNIA 91770 TELEPHONE (818) 288-6671 TELECOPIER 8183079218 Per you request, the following paragraphs will outline the City's approach to eliminate Fiscal Year 1995-96 and 1996-97 noncompliance findings, 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 investment in instruments not exceeding a maturity of five-years. If you have any further questions, please feel free to call me at (818) 288-6671. Sincerely, CITY OF ROSEMEAD Donald J klo:wp6 doc(1) 33 I CITY OF ROSEMEAD, CALIFORNIA 1 SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS Year Ended June 30, 1997 1 The prior year single audit disclosed no significant findings and no significant uncorrected or unresolved 1 findings related to federal awards exist from prior single audits. i C LI 1 1 1 1 1 1 1 1 1 1 1 34 1 I 1 I I SECTION III - COMPLIANCE MATTERS AND INTERNAL ACCOUNTING AND ADMINISTRATIVE CONTROLS I I 0 0 I I 1 1 1 1 I 1 H I I U I 1 1 1 I 1 A MCGLADREY&PULLEN, LLP ® Certified Public Accountants and Consultants 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 Major and Members of the City Council City of Rosemead Rosemead, California Compliance RSM international We have audited the compliance of the City of Rosemead (Rosemead) 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, 1997. Rosemead's major federal program is identified in the summary of auditor's results section of the accompanying schedule of finding 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, 1997. Suite 300 140 South Lake Avenue Pasadena, California 91101-2651 (818) 795-7950 FAX(818)795-9820 Worldwide Services Through 35 RSM International I 1 1 IJ 1 1 1 C 1 [1 Pasadena, California 1 September 30, 1997 1 J 1 1 1 1 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. Our consideration of the internal control over compliance would not necessarily disclose all matters in the 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 detected within a timely period by employees in the normal course of performing their assigned functions. We noted no matters involving the internal control over compliance and its operation that we consider to be material weaknesses. 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 Controllers 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. 36 1 I 10. McGLADREY&PULLEN, LLP RSM Certified Public Accountants and Consultants international 1 INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE AND ON INTERNAL CONTROL OVER FINANCIAL REPORTING BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED t IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS To the Honorable Major and Members of the City Council City of Rosemead ' Rosemead, California We have audited the financial statements of the City of Rosemead (Rosemead) as of and for the year ended June 30, 1997, and have issued our report thereon dated September 30, 1997. 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 1 1 LI I 1 1 I As part of obtaining reasonable assurance about whether Rosemead'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. Internal Control Over Financial Reporting in planning and performing our audit, we considered Rosemead's internal 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 the internal control over financial reporting. Our consideration of the 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 the internal controls over financial reporting and its operation that we consider to be material weaknesses as defined above. Suite 300 140 South Lake Avenue Pasadena, California 91101-2651 (818) 795-7950 FAX(818)795-9820 37 Worldwide Services Through RSM International II 1 e This report is intended for the information of management of the City of Rosemead, California, the 1 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. 1 ~ 12 1 Pasadena, California e September 30, 1997 I 1 1 1 1 1 1 1 1 I 11 38 e