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1996 City Compliance Reportsi I i I t CITY OF ROSEMEAD, CALIFORNIA I' FINANCIAL AND COMPLIANCE REPORT i I, JUNE 30, 1996 I, I ' I' I' I ' i I I 1 CONTENTS SECTION I - FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION INDEPENDENT AUDITOR'S REPORT ON THE GENERAL PURPOSE FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION I 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 't 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 - 28 I' INDEPENDENT AUDITOR'S REPORT ON THE SCHEDULE OF FEDERAL FINANCIAL ASSISTANCE 29 Schedule of Federal Financial Assistance 30 I' SECTION II - COMPLIANCE MATTERS AND INTERNAL ACCOUNTING AND ADMINISTRATIVE CONTROLS I' Reports required by Government Auditing Standards: Independent Auditor's Report on Compliance Based on an Audit of the I, General Purpose Financial Statements 31 and 32 Independent Auditor's Report on Internal Control Structure 33 and 34 ' Reports required by the Single Audit Act and OMB Circular A-128: Independent Auditor's Report on Compliance with Specific Requirements ' Applicable to Major Federal Financial Assistance Programs 35 and 36 Independent Auditor's Report on Compliance with the General Requirements Applicable to Federal Financial Assistance Programs 37 and 38 Independent Auditor's Report on the Internal Control Structure Used in ' Administering Federal Financial Assistance Programs 39 - 41 Independent Auditor's Comments on Resolution of Prior Year Audit Findings 42 I 1 h h I' I, 1' 1 1 11 11 11 I SECTION I - FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION I 0 MCGLADREY&PULLEN, LLP 0 Certified Public Accountants and Consultants INDEPENDENT AUDITOR'S REPORT ON THE GENERAL PURPOSE FINANCIAL STATEMENTS 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, 1996. 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 "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, 1996, 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 October 21, 1996, on our consideration of the City of Rosemead's internal control structure and a report dated October 21, 1996 on its compliance with laws and regulations. aIW47 W ~ jq~ / /.,/t /0 Pasadena, California October 21, 1996 Suite 300 140 South Lake Avenue Pasadena, California 91101-2651 (818) 795-7950 FAX(818)795-9820 Worldwide Services Through RSM International CITY OF ROSEMEAD, CALIFORNIA COMBINED BALANCE SHEET - ALL FUND TYPES AND ACCOUNT GROUPS June 30, 1996 Assets and Other Debits Assets Cash and investments Receivables Due from other funds Property and equipment Other Debits Amount available in debt service fund Amount to be provided for retirement of general long-term debt Total assets and other debits General $ 7,975,718 1,174,257 769,465 Governmental Fund Types Special Debt Revenue Service Capital Projects 10 Liabilities, Municipal Equity and Other Credits Liabilities $ 5,378,192 1,138,113 $ 2,344,150 11,193 $ 19,298,152 368,934 $ 9,919,440 $ 6,516,305 $ 2,355,343 $ 19,667,086 Checks issued in excess of bank balance $ - $ - $ - $ - Accounts payable and accrued liabilities 1,124,846 326,286 - 477,807 Arbitrage rebate payable - - - 180,000 Due to other funds - 768,940 - 525 Due to other governmental agencies - - - _ Deferred revenue - 244,663 - Refundable deposits - - Deferred compensation 190,000 Tax allocation notes and bonds Accrued vacation pay and compensatory time 1,566 Accrued litigation settlement - - _ Total liabilities 1,316,412 1,339,889 658,332 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. i I 687,269 ,I ~I F - 2,355,343 3,967,172 - I ' I 19,008,754 I 1,720,000 - - - 750,000 - - - 280,000 - - _ 2,680,000 - - - 2,485,759 1,209,244 - - 8,603,028 5,176,416 2,355,343 19,008,754 $ 9,919,440 $ 6,516,305 $ 2,355,343 $ 19,667,086 a 2 Fiduciary Fund Types Account Groups Total (Memorandum Only) General Trust and General Long-term Agency Fixed Assets Debt 1996 1995 $ 747,943 N 747,943 I' 86,228 435,630 I' 521,858 I ' - I ' - 226,085 S $ S 35,744,155 S 34,592,282 2,692,497 3,724,491 769,465 1,816,654 13,074,309 - 13,074,309 12,831,946 - 2,355,343 2,355,343 2,490,820 34,217,633 34,217,633 34,334,786 $ 13,074,309 $ 36,572,976 S 88,853,402 $ 89,790,979 $ - $ - $ - $ 894,599 - 1,928,939 1,515,319 - 180,000 - - 769,465 1,816,654 - 320,000 244,663 242,938 86,228 104,592 - 625,636 357,828 36,185,000 36;185,000 36,450,000 275,629 277,195 239,146 112,347 112,347 142,242 - 36,572,976 40,409,467 42,083,318 13,074,309 - 13,074,309 12,831,946 - 687,269 717,796 2,355,343 2,490,820 3,967,172 3,913,958 226,085 237,788 I' 19,008,754 19,786,128 1,720,000 969,000 I 750,000 500,000 ' 280,000 280,000 2,680,000 2,680,000 085 13 074 309 226 3,695,003 48 443 935 3,300,225 661 47 707 , , , , , , , ' S 747,943 $ 13,074,309 $ 36,572,976 S 88,853,402 S 89,790,979 ,1 3 CITY OF ROSEMEAD, CALIFORNIA COMBINED STATEMENT OF REVENUE, EXPENDITURES AND CHANGES IN FUND BALANCES - ALL GOVERNMENTAL FUND TYPES Year Ended June 30, 1996 Governmental Fund Special Debt Capital Revenue General Revenue Service Projects Property taxes and special assessments S $ 365,184 $ $ 2,671,909 Othertaxes 3,664,031 - _ Licenses and permits 760,191 - Intergovernmental 3,177,566 2,977,953 Charges for services 531,055 8,000 Fines, forfeitures and penalties 303,930 61,470 - Use of money and property 460,479 294,473 1,779 1,749,265 Arbitrage rebate _ _ _ - Other 102,536 165,314 - 31,659 8,999,788 3,872,394 1,779 4,452,833 Expenditures Current: General government 1,808,268 94,723 - 43,857 Public safety 4,419,427 313,999 - Public works 63,806 1,863,689 1,861,174 Public health 44,863 - _ Public recreation 1,868,823 861 Community service 955,219 912,133 Intergovernmental _ - Capital outlay 55,206 - 63,978 Debt service: Principal 265,000 - Interest 2,006,154 - Arbitrage rebate expenditure - 180,000 Investment loss _ - 9,215,612 3,185,405 2,271,154 2,149,009 Revenue over(under)expenditures (215,824) 686,989 (2,269,375) 2,303,824 Other Financing Sources (Uses) Operating transfers: From other funds 1,157,737 224,782 2,133,898 - (To) other funds (435,219) (3,081,198) Revenue and other financing sources over (under) expenditures and other financing (uses) 941,913 476,552 (135,477) (777,374) Fund Balance, beginning 7,387,388 4,973,591 2,490,820 19,786,128 Residual Equity Transfer 273,727 (273,727) Fund Balance, ending $ 8,603,028 $ 5,176,416 $ 2,355,343 $ 19,008,754 See Notes to Financial Statements. 4 1 Total (Memorandum Only) 1996 1995 S 3,037,093 S 3,798,723 3,664,031 3,907,616 760,191 699,234 6,155,519 6,733,543 539,055 564,962 365,400 317,969 2,505,996 1,383,762 153,976 299,509 233,630 17,326,794 17,793,415 ' 1,946,848 4,733,426 1,918,204 4,666,871 3,788,669 4,400,953 44,863 39,852 1,869,684 1,901,397 1,867,352 2,090,216 - 175,330 ' 119,184 1,713,742 265,000 260,000 ' ' 2,006,154 180,000 2,019,153 2,364,600 16,821,180 21,550,318 505,614 (3,756,903) I' 3,516,417 5,829,861 (3,516,417) (5,829,861) 505,614 (3,756,903) I ' 34,637,927 38,394,830 S 35,143,541 S 34,637,927 ~ , 5 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, 1996 General Special Revenue Over (Under) Revenue Budget Actual Budget Budget Actual 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 Arbitrage rebate expense 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. $ - $ $ - $ 360,000 $ 365,184 3,883,000 3,664,031 (218,969) - - 817,100 760,191 (56,909) 3,000,870 3,177,566 176,696 4,099,555 2,977,953 472,290 531,055 58,765 8,000 8,000 229,500 303,930 74,430 60,000 61,470 330,200 460,479 130,279 162,050 294,473 89,650 102,536 12,886 150,150 165,314 8,822,610 8,999,788 177,178 4,839,755 3,872,394 1,706,589 1,808,268 101,679 17,600 94,723 4,566,570 4,419,427 (147,143) 346,860 313,999. 85,120 63,806 (21,314) 3,322,962 1,863,689 40,000 44,863 4,863 - - 2,198,729 1,868,823 (329,906) - 861 1,378,403 955,219 (423,184) 1,246,430 912,133 73,352 - (73,352) - - 39,254 55,206 15,952 10,088,017 9,215,612 (872,405) 4,933,852 3,185,405 (1,265,407) (215,824) 1,049,583 (94,097) 686,989 'I 1,097,300 1,157,737 60,437 224,782 - (435,219) ' I 1,097,300 1,157,737 60,437 (210,437) I $ (168,107) 941,913 $ 1,110,020 $ (94,097) 476,552 7,387,388 4,973,591 ' I 273,727 (273,727) $ 8,603,028 $ 5,176,416 I~ 6 ' Nov+~:-rI ti - 1 I Special Revenue Debt Service Capital Projects ' Over (Under) Over (Under) Over (Under) Budget Budget Actual Budget Budget Actual Budget $ 5,184 $ $ $ 3,303,540 $ 2,671,909 $ (631,631) ' (1,121,602) ' 1,470 - - - 132,423 130,000 1,779 (128,221) 685,080 1,749,265 1,064,185 15,164 - - - 31,659 31,659 ' 361) 130 000 (967 1 779 (128 221) 3 988 620 4 452 833 464 213 , , , , , , , , , 77,123 52,400 43,857 (8,543) (32,861) (1,459,273) 3,995,400 1,861,174 (2,134,226) 861 (334,297) ' 64,200 63,978 (222) 265,000 265,000 - 2,005,503 2,006,154 651 - - 180,000 180,000 (1,748,447) 2,270,503 2,271,154 651 4,112,000 2,149,009 (1,962,991) 781,086 (2,140,503) (2,269,375) (128,872) (123,380) 2,303,824 2,427,204 ' 224,782 2,270,503 2,133,898 (136,605) - - (435,219) - - (3,367,803) (3,081,198) 286,605 (210,437) 2,270,503 2,133,898 (136,605) (3,367,803) (3,081,198) 286,605 $ 570,649 $ 130,000 (135,477) $ (265,477) $ (3,491,183) (777,374) $ 2,713,809 ' 2,490,820 19,786,128 I $ 2,355,343 $ 19,008,754 1 I 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, CONTIN UED June 30, 1996 Total (Memorandum Only) Over (Under) ' Revenue Budget Actual Budget Property taxes and special assessments $ 3,663,540 $ 3,037,093 . $ (626,447) ' Other taxes Licenses and permits 3,883,000 817,100 3,664,031 760,191 (218,969) (56,909) Intergovernmental 7,100,425 6,155,519 (944,906) Charges for services 480,290 539,055 58,765 ' Fines, forfeitures and penalties 289,500 365,400 75,900 Use of money and property 1,307,330 2,505,996 1,198,666 Other 239,800 299,509 59,709 17,780,985 17,326,794 (454,191) Expenditures Current: ' General government Public safety 1,776,589 4,913,430 1,946,848 4,733,426 170,259 (180,004) Public works 7,403,482 3,788,669 (3,614,813) Public health 40,000 44,863 4,863 Public recreation 2,198,729 1,869,684 (329,045) Community service 2,624,833 1,867,352 (757,481) Appropriations reserves 73,352 - (73,352) Capital outlay 103,454 119,184 15,730 ' Debt service: Principal 265,000 265,000 - Interest 2,005,503 2,006,154 651 Arbitrage rebate expense 180,000 180,000 21,404,372 16,821,180 (4,583,192) Revenue over (under) ' expenditures (3,623,387) 505,614 4,129,001 Other Financing Sources (Uses) Operating transfers: ' From other funds 3,367,803 3,516,417 148,614 (To) other funds (3,367,803) (3,516,417) (148,614) Revenue and other financing sources over (under) expendi- tures and other financing (uses) $ (3,623,387) 505,614 $ 4,129,001 Fund Balance, beginning 34,637,927 ' Residual Equity Transfer Fund Balance, ending $ 35,143,541 See Notes to Financial Statements. ' 8 ' CITY OF ROSEMEAD, CALIFORNIA STATEMENT OF REVENUE, EXPENSES AND CHANGES IN FUND BALANCE - PENSION TRUST FUND Year Ended June 30, 1996 Operating revenue, interest and other investment income $ 12,645 Operating expenses: ' Administrative fees 3,629 Pension benefits 20,719 24,348 ' Net (loss) (11,703) t Fund balance, beginning 237,788 Fund balance, ending $ 226,085 1 See Notes to Financial Statements. 1 ' 9 ' CITY OF ROSEMEAD, CALIFORNIA STATEMENT OF CASH FLOWS - PENSION TRUST FUND Year Ended June 30, 1996 Cash Flows from Operating Activities ' Net (loss) $ (11,703) Adjustments to reconcile net (loss) to net cash (used in) operating activities: Administrative expenses payable 3,629 Unrealized interest and investment income (12,645) Net cash (used in) operating activities (20,719) ' Cash Flows Provided by Investing Activities Proceeds from the sale and maturity of annuity contracts 20,719 ' Net increase in cash and cash equivalents - Cash, beginning Cash, ending $ ' ' See Notes to Financial Statements. 1 1 1 ' 10 I CITY OF ROSEMEAD, CALIFORNIA I NOTES TO FINANCIAL STATEMENTS I 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 Agency has the same fiscal year as the City. The component unit financial statements can be obtained from the City Clerk. ' 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. ' 11 I I Note 1. Reporting Entity, Nature of Operations, Description of Funds and Account Groups, CITY OF ROSEMEAD, CALIFORNIA NOTES TO FINANCIAL STATEMENTS 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: I 1 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. 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. 12 I NOTES TO FINANCIAL STATEMENTS CITY OF ROSEMEAD, CALIFORNIA ' Note]. Reporting Entity, Nature of Operations, Description of Funds and Account Groups, and Significant Accounting Policies, Continued 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. 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. 13 1 I P CITY OF ROSEMEAD, CALIFORNIA NOTES TO FINANCIAL STATEMENTS I Note 1. Reporting Entity, Nature of Operations, Description of Funds and Account Groups, and Significant Accounting Policies, Continued ' 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. i 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. 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. 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. ' 14 I CITY OF ROSEMEAD, CALIFORNIA NOTES TO FINANCIAL STATEMENTS Note 1. Reporting Entity, Nature of Operations, Description of Funds and Account Croups, . and Significant Accounting Policies, Continued I Receivables I L_ 1 LJ~ u 1 Property taxes attach as an enforceable lien on property as of March 1. Taxes are levied on July 1 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 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, 1996 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. 15 I I 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 "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 1995 totals presented in the "Memorandum Only" columns are included to provide a summarized comparison with comparable 1996 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 expenditures for the year ended June 30, 1995 have ' been reclassified, with no effect on net revenue over expenditures, to be consistent with the classifications adopted for the fiscal year ended June 30, 1996. I Note Z 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 1 16 I I CITY OF ROSEMEAD, CALIFORNIA NOTES TO FINANCIAL STATEMENTS Note 3. Cash and Investments The components of cash and investments at June 30, 1996 are as follows: Cash in bank Time certificates of deposit Cash subtotal Other investments Cash with fiscal agent Guaranteed issuance contracts Investment in State Treasury's Investment Pool Investment in annuity contracts I Cash 1 I balance, $480,935 was covered by federal depository insurance, and $4,435,177 was uninsured and Cash and investments total $ 2,376,633 2,457,771 4,834,404 4,146,825 2,344,152 14,583,729 9,173,331 661,714 $ 35,744,155 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 $4,834,404 and the bank balance was $4,916,112. Of the $4,916,112 bank uncollateralized. 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 110% of a I 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 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. Investments include cash with fiscal agent for $2,344,152, which is invested in a guaranteed insurance ' contract which accrues interest monthly at an interest rate of 5.8%, maturing October 1, 2013. 17 I I I I 1 I I CITY OF ROSEMEAD, CALIFORNIA NOTES TO FINANCIAL STATEMENTS Note 4. Cash and Investments, Continued Investments in annuity contracts included $226,085 and $435,629 invested in the Pension Trust Fund and Deferred Compensation Plan, respectively. These investments were carried at market value. Investments also included $14,583,729 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 $ - $ - $ 2,067,732 $ 2,067,732 $ 2,107,430 State and municipal bonds - - 890,520 890,520 892,000 Corporate bonds - - 1,188,573 1,188,573 1,077,956 $ $ - $ 4,146,825 4,146,825 4,077,386 Cash with fiscal agent Guaranteed Investment Contracts Investment in State Treasurer's Invest- ment Pool Total other investments The three preceding risk description categories are defined as follows: Category 1 I I 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. 18 2,344,152 14,583,729 2,344,152 14,583,729 9,173,331 9,173,331 $ 30,248,037 $ 30,178,598 i i I 1 I 1 I I I I I 1, I 11i I CITY OF ROSEMEAD, CALIFORNIA NOTES TO FINANCIAL STATEMENTS Note 4. Receivables Receivables as of June 30, 1996 consist of the following: Special Capital General Revenue Debt Service Projects Total Property tax increment $ - $ - $ - $ 25,252 $ 25,252 Accrued interest 117,080 46,663 11,193 343,682 518,618 Due from local utility companies (A) 687,269 - - - 687,269 Due from other governmental agencies 133,197 1,091,450 - - 1,224,647 Transient occupancy tax 193,267 - - - 193,267 Other 43,444 - - 43,444 $ 1,174,257 $ 1,138,113 $ 11,193 $ 368,934 $ 2,692,497 t"' 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. 19 I CITY OF ROSEMEAD, CALIFORNIA NOTES TO FINANCIAL STATEMENTS a Note 5. Interfund Receivables and Payables Interfund receivables and payables as of June 30, 1996 are as follows: i I Interfun d i _ Funds Receivables Payables General Fund $ 769,465 $ Special Revenue Funds: Traffic Safety - 8,158 LocafTransportation Fund Community Development Block Grant - 759,382 Narcotics _ - California Wildlife Grant 1,400 - 768,940 S d - l P F i 525 rojects un Cap ta $ 769,465 $ 769,465 Note 6. Property and Equipment Changes in property and equipment during the year ended June 30, 1996 were as follows: Balance, Balance, June 30, 1995 Acquisitions Disposals June 30, 1996 Land $ 2,893,234 $ - $ $ 2,893,234 Buildings and improvements 7,384,369 70,163 7,454,532 ' Vehicles 240,940 36,972 25,648 252,264 Furniture and office equipment 981,840 144,432 1,126,272 Special equipment and machinery 494,247 1,168 495,415 Other improvements 837,316 15,276 - 852,592 $ 12,831,946 $ 268,011 $ 25,648 $ 13,074,309 Note 7. Employee Pension Plans The City had a defined contribution pension plan which covered substantially all retired e mployees 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 contributions to this plan for the fiscal year e nded June 30, 1996. On September 8, 1992, participants of the plan who were current employees had thei r share of the annuity contract transferred to the California Public Employee Retirement System (PERS). The value of the annuity contract for retired employees was $226,085 as of June 30, 1996. 20 I I NOTES TO FINANCIAL STATEMENTS CITY OF ROSEMEAD, CALIFORNIA ' 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, 1995 was $1,175,661 and total payroll was $1,757,783. 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. ' 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, 1995 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 21 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, 1995 is as follows: Pension benefit obligation: Retirees and beneficiaries receiving benefits and terminated employees not yet receiving benefits $ 319,611 Current employees: Accumulated employee contributions including allocated investment earnings $ 224,349 Employer-financed, vested 1,447,675 Employer-financed, nonvested 29,574 1,701,598 Total pension benefit obligation 2,021,209 Net assets available for benefits, at cost (market value $2,000,984) 1,882,394 Unfunded pension benefit obligation $ 138,815 Actuarially determined contribution requirements and contribution made 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. 22 I NOTES TO FINANCIAL STATEMENTS CITY OF ROSEMEAD, CALIFORNIA ' Note 7. Employee Pension Plans, Continued The contribution to the plan for the fiscal year ended June 30, 1996 totaling $183,055 was made in ' accordance with actuarially determined requirements computed through an actuarial valuation performed as of June 30, 1995. The contribution consisted of. ' Normal cost (6.761 % of current covered payroll) $ 79,894 Amortization of the unfunded actuarial accrued liability (8.73% of current covered payroll) 103,161 ' $ 183 055 , Amounts contributed on behalf of: City (8.491 % of current covered payroll) 100,337 Employees (7% of current covered payroll) 82,718 183 055 $ , 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 years available is as follows: Unfunded (Overfunded) Pension Contribu- Benefit Obli- tion to gation as System n 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 1993 $ 1,148,500 $ 288,240 398.3 % $ (860,260) $ 1,318,110 (65.3) % 15.491 % 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 93.1 138,810 1,331,870 10.4 15.491 Showing unfunded pension benefit obligation as a percentage of annual covered payroll approximately adjusts for the effects of inflation for analysis purposes. 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 $435,630 at June 30, 1996. 23 I NOTES TO FINANCIAL STATEMENTS CITY OF ROSEMEAD, CALIFORNIA ' Note 8. Deferred Compensation Agreements, Continued 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. ' 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 ' 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. 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 24 I CITY OF ROSEMEAD, CALIFORNIA I 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 $275,629 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 group of accounts fo r the litigation settlement. The following is a summary of the general long-term debt transactions for the year ended June 30, 1996: Tax Allocation Tax Allocation Accrued Vacation and Bonds Series Bonds Series Litigation Compensatory 1993A 1993B Settlement Time Total ' Balance, June 30, 1995 $ 34,275,000 $ 2,175,000 $ 142,242 $ 233,364 $ 36,825,606 Payments of principal - (265,000) - - (265,000) Additions 42,265 42,265 Reductions in settlement (29,895) (29,895) Balance, June 30, 1996 $ 34,275,000 $ 1,910,000 $ 112,347 $ 275,629 S 36,572,976 1 1 1 25 I NOTES TO FINANCIAL STATEMENTS CITY OF ROSEMEAD, CALIFORNIA ' Note 10. Long-term Debt, Continued The annual requirements, principal and in terest to amort ize the outstanding debt as of J une 30, 1996 are ' as follows: Accrued Series 1993 Vacation and During the Year A and B Litigation Compensa- Ending June 30, Bonds Settlement tory Time Interest Total 1997 $ 280,000 $ 35,574 $ 275,629 $ 2,006,477 $ 2,597,680 1998 295,000 37,666 - 1,989,427 2,322,093 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 Years thereafter 34,625,000 - - 41,759,430 76,384,430 ' $ 36 185 000 $ 112 347 $ 275 629 $ 51 611 300 184 276 $ 88 , , , , , , , , Defeasance ofprior 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, 1996, $19,215,000 of bonds outstanding are considered defeased. I 26 1 I 1 1 1 I I CITY OF ROSEMEAD, CALIFORNIA NOTES TO FINANCIAL STATEMENTS Note]]. Budget Overexpenditures and Deficit Expenditures exceeded Appropriations for the year ended June 30, 1996 in the following departments: Amount of Over- Appropriations Expenditures expenditures General Fund Travel and meetings $ 18,000 $ 27,753 $ 9,753 City administration 451,480 671,716 220,236 City clerk 71,150 71,833 683 City treasurer 12,000 12,875 875 City garage 30,540 32,154 1,614 Animal regulation 50,000 51,443 1,443 Narcotics forfeiture - 90 90 Street lighting 192 192 Traffic signs and striping maintenance - 890 890 Aquatics 292,000 297,355 5,355 Capital outlay 39,254 55,206 15,952 Traffic Safety Fund Public safety 60,000 61,470 1,470 Community Parklands Grant Fund Public recreation - 861 861 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 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, 1996, 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. 27 I I NOTES TO FINANCIAL STATEMENTS CITY OF ROSEMEAD, CALIFORNIA I Nate 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, 1996 was $112,347. This amount is included in the City's long-term debt account group as of June 30, 1996. ' 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 City of Rosemead has denied the claim. An application for leave to file a late claim was also denied. At the present, there is not enough information to assess the ultimate outcome. Advance agreement In February 1996, 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 October 21, 1996, the agreement continues to remain on hold. Note 13. Pronouncement Issued But Not Yet Adopted In November 1994, the Governmental Accounting Standards Board 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, with early implementation encouraged. The City has not completed its assessment of the effect that the adoption of Statement No. 27 will have on its financial statements. 7 L~l 1 28 I ``I IJ I I 1 r, iJ 1 1 i I i 1 I 1 I~ 1 1 INDEPENDENT AUDITOR'S REPORT ON THE SCHEDULE OF FEDERAL FINANCIAL ASSISTANCE To the Honorable Mayor and Members of the City Council City of Rosemead Rosemead, California We have audited the general purpose financial statements of the City of Rosemead, for the year ended June 30, 1996 and have issued our report thereon, dated Octo general purpose financial statements are the responsibility of the City's management. to express an opinion on these general purpose financial statements based on our audit RSM international California, as of and ber 21, 1996. These Our responsibility is We conducted our audit in accordance with generally accepted auditing standards and "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. Our audit was made for the purpose of forming an opinion on the general purpose financial statements of the City of Rosemead, California, taken as a whole. The accompanying schedule of federal financial assistance is presented for purposes of additional analysis and is not a required part of the general purpose financial statements. The information in that schedule 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 October 21, 1996 Suite 300 140 South Lake Avenue Pasadena, California 91101-2651 (818) 795-7950 FAX(818)795-9820 McGLADREY&PULLEN, LLP Certified Public Accountants and Consultants 29 Worldwide Services Through RSM International 1 1 1 i 1 1 1 i 1 CITY OF ROSEMEAD, CALIFORNIA SCHEDULE OF FEDERAL FINANCIAL ASSISTANCE Year Ended June 30, 1996 Catalog of Federal Domestic Pass-through Assistance Grantor's Federal Grantor/Program Title Number Number Expenditures U.S. Department of Housing and Urban Development: Community Development Block Grant Program - Entitlement Grants - Large Cities 14.218 B92UC06-0505 $ 956,396 30 I I SECTION II - COMPLIANCE MATTERS AND INTERNAL ACCOUNTING AND ADMINISTRATIVE CONTROLS I ~I I I 11I.McGLADREY&PULLEN, LLP RSM Certified Public Accountants and Consultants international I~ u INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE BASED ON AN AUDIT OF THE GENERAL PURPOSE FINANCIAL STATEMENTS ' To the Honorable Mayor and Members of the City Council ' City of Rosemead Rosemead, California We have audited the general purpose financial statements of the City of Rosemead, California, as of and for the year ended June 30, 1996, and have issued our report thereon, dated October 21, 1996. We conducted our audit in accordance with generally accepted auditing standards and "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 Q free of material misstatement. Compliance with laws, regulations, contracts and grants applicable to the City of Rosemead, California, is the responsibility of the City's management. As part of obtaining reasonable assurance about whether the financial statements are free of material misstatement, we performed tests of the City's compliance with certain provisions of laws, regulations, contracts and grants. However, the objective of our audit of the financial statements was not to provide an opinion on overall compliance with such provisions. Accordingly, we do not express such an opinion. We noted certain conditions that we believe constitute instances of noncompliance, but which we conclude do not represent material noncompliance. These conditions are described below. Investments A During the fiscal year ended June 30, 1996, as noted during the prior two fiscal years, the City had investments in its General Fund that exceeded the five-year maturities limit set by the California Municipal Code. During the fiscal year ended June 30, 1994, we recommended that the City design procedures to ensure that any future investments are in compliance with the California Municipal Code. We noted that all investments acquired since the fiscal year ended June 30, 1994 have had maturities less than, or equal to, five years. As of June 30, 1996, the City was still holding $1,200,000 of investments, all purchased prior to July 1, 1994, whereby the original maturity was greater than five years. On January 1, 1996, the California Municipal Code was amended relating to investment reporting by the City Treasurer to the City Council. We noted that prior to July 1, 1996, the City did not adhere to these investment reporting guidelines as they relate to the timing and content of the City Treasurer's report; however, the City has since implemented the requirements of the California Municipal Code as they relate to investments. We recommend that the City continue to adhere to the amended California Municipal Code requirements. Q I Suite 300 140 South Lake Avenue Pasadena, California 91 101-2651 (818) 795-7950 FAX(818)795-9820 31 Worldwide Services Through RSM International I 0 1 I I We considered the instances of noncompliance in forming our opinion on whether the City of Rosemead, California's 1996 financial statements are presented fairly, in all material respects, in conformity with generally accepted accounting principles, and this report does not effect our report dated October 21, 1996 on those financial statements. 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 Fiscal Affairs). However, this report is a matter of public record and its distribution is not limited. 0 Pasadena, California October 21. 1996 I 0 I 1 1 I 1. i ,11" /Z 32 I I I 1 1 I MCGLADREYOULLEN, LLP RSM ® Certified Public Accountants and Consultants international INDEPENDENT AUDITOR'S REPORT ON INTERNAL CONTROL STRUCTURE To the Honorable Mayor and Members of the City Council City of Rosemead Rosemead, California We have audited the general purpose financial statements of the City of Rosemead, California, as of and for the year ended June 30, 1996, and have issued our report thereon, dated October 21, 1996. We conducted our audit in accordance with generally accepted auditing standards and "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 I I I 1 I free of material misstatement. The management of the City of Rosemead, California, is responsible for establishing and maintaining an internal control structure. In fulfilling this responsibility, estimates and judgments by management are required to assess the expected benefits and related costs of internal control structure policies and procedures. The objectives of an internal control structure are to provide management with reasonable, but not absolute, assurance that assets are safeguarded against loss from unauthorized use or disposition, and that transactions are executed in accordance with management's authorization and recorded properly to permit the preparation of financial statements in accordance with generally accepted accounting principles. Because of inherent limitations in any internal control structure, errors or irregularities may nevertheless occur and not be detected. Also, projection of any evaluation of the structure to future periods is subject to the risk that procedures may become inadequate because of changes in conditions or that the effectiveness of the design and operation of policies and procedures may deteriorate. In planning and performing our audit of the financial statements of the City of Rosemead, California, as of and for the year ended June 30, 1996, we obtained an understanding of the internal control structure. With respect to the internal control structure, we obtained an understanding of the design of relevant policies and procedures and whether they have been placed in operation, and we assessed control risk in order to determine our auditing procedures for the purpose of expressing our opinion on the financial statements and not to provide an opinion on the internal control structure. Accordingly, we do not express such an opinion. Suite 300 140 South Lake Avenue Pasadena, California 91101-2651 (818) 795-7950 FAX(818)795-9820 33 Worldwide Services Through RSM International Our consideration of the internal control structure would not necessarily disclose all matters in the internal control structure that might be material weaknesses under standards established by the American Institute of Certified Public Accountants. A material weakness is a condition in which the design or operation of ' one or more of the internal control structure elements does not reduce to a relatively low level the risk that errors and irregularities 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 noted no matters involving the internal control structure and its operations that we consider to be material weaknesses as defined above. 1 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 Office (Division of Audits and Division of Local Government Fiscal Affairs). However, this report is a matter of public record and its distribution is not limited. ' Pasadena, California October 21, 1996 I 1 I 1 0 34 P 1 0 MCGLADREY&PULLEN,LLP RSM HIS Certified Public Accountants and Consultants international INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE WITH SPECIFIC REQUIREMENTS APPLICABLE TO MAJOR FEDERAL FINANCIAL ASSISTANCE PROGRAMS To the Honorable Mayor and Members of the City Council City of Rosemead Rosemead, California We have audited the general purpose financial statements of the City of Rosemead, California, as of and for the year ended June 30, 1996, and have issued our report thereon, dated October 21, 1996. We have also audited the City of Rosemead, California's compliance with the requirements governing: • types of services allowed or not allowed, • reporting, • special tests and provisions applicable to the local government's major programs, - timing of expenditures, - environmental reviews and - program income, and have determined whether federal financial reports and claims for advances and reimbursements contain information that is supported by the books and records from which the basic financial statements have been prepared and amounts claimed were determined in accordance with Office of Management and Budget (OMB) Circular A-87 and OMB's Common Rule that are applicable to its major federal financial assistance program, which is identified in the accompanying schedule of federal financial assistance, for the year ended June 30, 1996. The management of the City is responsible for the City's compliance with those requirements. Our responsibility is to express an opinion on compliance with those requirements based on our audit. Suite 300 140 South Lake Avenue Pasadena, California 91101-2651 (818) 795-7950 FAX(818)795-9820 35 Worldwide Services Through RSM International I 1 We conducted our audit of compliance with those requirements in accordance with generally accepted auditing standards, Government Auditing Standards, issued by the Comptroller General of the United 1 States, and OMB Circular A-128, Audits of.State and Local Governments. Those standards and OMB Circular A-128 require that we plan and perform the audit to obtain reasonable assurance about whether material noncompliance with the requirements referred to above occurred. An audit includes examining, on 1 a test basis, evidence about the City's compliance with those requirements. We believe that our audit provides a reasonable basis for our opinion. 1 The results of our audit procedures disclosed no instances of noncompliance with the requirements referred to above. 1 In our opinion, the City of Rosemead, California, complied in all material respects with the requirements governing: 1 types of services allowed or not allowed; reporting; timing of expenditures; 1 environmental reviews; program income; preparation of federal financial reports and claims for advances and reimbursements from information 1 that is supported by the books and records from which the basic financial statements have been prepared, and calculation and determination of amounts claimed in accordance with the requirements of OMB 1 Circular A-87 and OMB's Common Rule that are applicable to its major federal financial assistance program for the year ended June 30, 1996. 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 Office 1 (Division of Audits and Division of Local Government Fiscal Affairs). However, this report is a matter of public record and its distribution is not limited. I e F/ I 1 Pasadena, California October 21, 1996 1 1 i 1 36 1 I I 1 McGLADREY&PULLEN, LLP RSM ® Certified Public Accountants and Consultants international INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE WITH THE GENERAL REQUIREMENTS APPLICABLE TO FEDERAL FINANCIAL ASSISTANCE PROGRAMS To the Honorable Mayor and Members of the City Council City of Rosemead Rosemead, California We have audited the general purpose financial statements of the City of Rosemead, California, as of and for the year ended June 30, 1996, and have issued our report thereon dated October 21, 1996. We have applied procedures to test the City's compliance with the following requirements applicable to its federal financial assistance program, which is identified in the schedule of federal financial assistance, for the year ended June 30, 1996: • Political activity • Davis-Bacon Act • Civil rights • Cash management • Real property acquisition • Federal financial reports • Allowable costs/costs principles • Drug-free workplace • Administrative requirements Our procedures were limited to the applicable procedures described in the Office of Management and Budget's (OMB) Compliance Supplement for Single Audits of State and Local Governments. Our procedures were substantially less in scope than an audit, the objective of which is the expression of an opinion on the City's compliance with the requirements listed in the preceding paragraph. Accordingly, we do not express such an opinion. With respect to the items tested, the results of those procedures disclosed no instances of noncompliance with the requirements listed in the second paragraph of this report. With respect to items not tested, nothing came to our attention that caused us to believe that the City had not complied, in all material respects, with those requirements. Suite 300 Worldwide 140 South Lake Avenue Services Pasadena, California 91101-2651 Through (818) 795-7950 FAX(818)795-9820 37 RSM International 1 1 t t 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 Fiscal Affairs). However, this report is a matter of public record and its distribution is not limited. Pasadena, California October 21, 1996 38 McGLADREY&PULLEN, LLP RSM a Certified Public Accountants and Consultants international H I INDEPENDENT AUDITOR'S REPORT ON THE INTERNAL CONTROL STRUCTURE USED IN ADMINISTERING FEDERAL FINANCIAL ASSISTANCE PROGRAMS To the Honorable Mayor and Members of the City Council City of Rosemead Rosemead, California We have audited the general purpose financial statements of the City of Rosemead, California, as of and ' for the year ended June 30, 1996, and have issued our report thereon dated October 21, 1996. We have also audited the City's compliance with requirements applicable to its major federal financial assistance program and have issued our report thereon, dated October 21, 1996. L 1 I We conducted our audits in accordance with generally accepted auditing standards; "Government Auditing Standards," issued by the Comptroller General of the United States; and Office of Management and Budget (OMB) Circular A-128, Audits of State and Local Governments. Those standards and OMB Circular A-128 require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement and about whether the City complied with laws and regulations, noncompliance with which would be material to the major federal financial assistance program. In planning and performing our audits for the year ended June 30, 1996, we considered the City's internal control structure in order to determine our auditing procedures for the purpose of expressing our opinions on the City's financial statements and on its compliance with requirements applicable to its major federal financial assistance program, and to report on the internal control structure in accordance with OMB Circular A-128. This report addresses our consideration of internal control structure policies and procedures relevant to compliance with requirements applicable to federal financial assistance programs. We have addressed internal control structure policies and procedures relevant to our audit of the financial statements in a separate report dated October 21, 1996. Suite 300 140 South Lake Avenue Pasadena, California 91101-2651 (818) 795-7950 FAX (818) 795-9820 39 Worldwide Services Through RSM International I I procedures used in administering federal financial assistance programs in the following categories: The management of the City is responsible for establishing and maintaining an internal control structure. In fulfilling this responsibility, estimates and judgments by management are required to assess the expected benefits and related costs of internal control structure policies and procedures. The objectives of an internal control structure are to provide management with reasonable, but not absolute, assurance that assets are safeguarded against loss from unauthorized use or disposition, that transactions are executed in accordance with management's authorization and recorded properly to permit the preparation of financial statements in accordance with generally accepted accounting principles, and that federal financial assistance programs are managed in compliance with applicable laws and regulations. Because of inherent limitations in any internal control structure, errors, irregularities or instances of noncompliance may nevertheless occur and not be detected. Also, projection of any evaluation of the structure to future periods is subject to the risk that procedures may become inadequate because of changes in conditions or that the effectiveness of the design and operation of policies and procedures may deteriorate. For the purpose of this report, we have classified the significant internal control structure policies and INTERNAL ACCOUNTING CONTROLS Revenue ' - Fee - Service ' - Miscellaneous sources • Receipts • Expenditures/expenses ' - Purchasing - Acquisition and disposal of fixed assets - Cash disbursements - Payroll • Financing - Investments - Debt issuance • Budgeting • Financial reporting ' ADMINISTRATIVE CONTROLS General requirements: - Political activity - Davis-Bacon Act - Civil rights - Cash management ' - Real property acquisition - Federal financial reports - Allowable costs/cost principles - Drug-free workplace - Administrative requirements 40 1 I I 1 1 i I 1 I Specific Requirements: - Types of services allowed and unallowed - Reporting - Cost allocation - Timing of expenditures - Environmental reviews - Program income - Claims for advances and reimbursements For all of the internal control structure categories listed above, we obtained an understanding of the design of relevant policies and procedures and determined whether they have been placed in operation, and we assessed control risk. During the year ended June 30, 1996, the City expended 100% of its total federal financial assistance under one major federal financial assistance program. We performed tests of controls, as required by OMB Circular A-128, to evaluate the effectiveness of the design and operation of internal control structure policies and procedures that we considered relevant to preventing or detecting material noncompliance with specific requirements, general requirements and requirements governing claims for advances and reimbursements and amounts claimed or used for matching that are applicable to the City's major federal financial assistance program, which is identified in the accompanying schedule of federal financial assistance. Our procedures were less in scope than would be necessary to.render an opinion on these internal control structure policies and procedures. Accordingly, we do not express such an opinion. Our consideration of the internal control structure policies and procedures used in administering federal financial assistance would not necessarily disclose all matters in the internal control structure that might be reportable conditions and, accordingly, would not necessarily disclose all reportable conditions that are also considered to be material weaknesses as defined above. A material weakness is a condition in which the design or operation of one or more of the internal control structure elements does not reduce to a relatively low level the risk that errors and irregularities 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 noted no matters involving the internal control structure and its operations that we consider to be material weaknesses as defined above. 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 Fiscal Affairs). However, this report is a matter of public record and its distribution is not limited. ' Pasadena, California October 21, 1996 I 0 41 1 1 1 CITY OF ROSEMEAD, CALIFORNIA INDEPENDENT AUDITOR'S COMMENTS ON RESOLUTION OF PRIOR YEAR AUDIT FINDINGS Year Ended June 30, 1996 There are no prior year audit findings which were not settled with the grantor during the current audit period, or for which the City has not implemented the corrective action recommended to correct the cause of the finding or the corrective procedures described in the City's corrective action plan for prior year findings. 42