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1995 City Compliance ReportsI 1 1 1 1 I i 11 1 I CITY OF ROSEMEAD, CALIFORNIA FINANCIAL AND COMPLIANCE REPORT JUNE 30, 1995 I 1 1 I 11 I CONTENTS SECTION I - GENERAL PURPOSE FINANCIAL STATEMENTS INDEPENDENT AUDITOR'S REPORT ON THE GENERAL PURPOSE FINANCIAL STATEMENTS Combined balance sheet - all fund Rees and account groups 2 and 3 Combined statement of revenues, expenditures and changes in fund balances - all governmental fund types 4 and 5 Combined statement of revenues, 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 - 24 INDEPENDENT AUDITOR'S REPORT ON THE SCHEDULE OF FEDERAL FINANCIAL ASSISTANCE 25 Schedule of Federal Financial Assistance 26 SECTION II - COMPLIANCE MATTERS AND INTERNAL ACCOUNTING AND ADMINISTRATIVE CONTROLS REPORTS REQUIRED BY GOVERNMENT AUDITING STANDARDS Independent auditor's report on, Compliance based on an audit of the general purpose financial statements 27 Internal control structure 28 and 29 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 30 and 31 Compliance with the general requirements applicable to federal financial assistance programs 32 and 33 The internal control structure used in administering federal financial assistance programs 34 - 37 Schedule of compliance findings and questioned costs 38 and 39 I 1 i 1 i 1 SECTION I i GENERAL PURPOSE FINANCL9L STATEMENTS 1 1 1 1 F 1 1 1 1 1 1 1 MCGLADREY&PULLEN, LLP 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 ' We have audited the accompanving general purpose financial statements of the City of Rosemead. California, as of and for the year ended June 30. 1995, as listed in the table of contents. 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, 1995, 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 13, 1995 on our consideration of the City of Rosemead's internal control structure and a report dated October 13, 1995 on its compliance with laws and regulations. ' Our audit was made for the purpose of forming an opinion on the general purpose financial statements taken as a whole. The combining, individual fund and individual account group statements and schedules listed in the table of contents as supplementary information are presented for purposes of additional analysis and are 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 asa whole. I ~2csL/ L L~ ' San Bernardino, California October 13, 1995 I F1 I THIS PAGE IS INTENTIONALLY LEFT BLANK CITY OF ROSEMEAD, CALIFORNIA COMBINED BALANCE SHEET ALL FUND TYPES AND ACCOUNT GROUPS June 30, 1995 Governmental Fund Cash Receivables Due from other funds Property and equipment Amount available in debt service fund Amount to be provided for retirement of general long-term debt Total assets Liabilities, Municipal Equity and Other Credits Special Debt Revenue Service 5,460,274 3 4,826,440 $ 2,390,426 $ 1,807,728 1,514,753 100,394 1,126,693 689,961 - Capital ?rojects ' 21,217,659 298,016 $ 8,394,695 $ 7,031,154 $ 2,490,820 $ 21,515,675 ' Liabilities Checks issued in excess of bank balance $ - $ - $ - $ 894,599 Accounts payable and accrued liabilities 681,525 647,898 - 185,896 Arbitrage rebate payable - - - - Due to other funds - 1,166,727 - 649,052 Due to other governmental agencies Refundable deposits Deferred compensation Tax allocation notes Accrued vacation pay and compensatory time Accrued litigation settlement Due to other governments Total liabilities Municipal Equity and Other Credits Investment in general fixed assets Fund balance: Reserved: Long-term receivable Debt service Low-moderate income housing Employees retirement Unreserved: Designated for: Capital projects Building and equipment replacement Litigation settlements Self-insurance Contingencies Undesignated Total municipal equity and other credits Total liabilities, municipal equity and other credits See Notes to Financial Statements. 320,000 242,938 5,782 1,007,307 2,057,563 1,729,547 717,796 3,913,958 2,490,820 19,786,128 969,000 500,000 - - - 280,000 - - - 2,680,000 - 2,240,592 1,059,633 - - 7,387,388 4,973,591 2,490,820 19,786,128 $ 8,394,695 $ 7,031,154 $ 2,490,820 $ 21,515,675 I 1 J I I Fiduciary Fund Types Account Groups Total (Memorandum Only) Trust General General and Fixed Long-Term Agency Assets Debt 1995 1994 ' 3 697,483 $ - $ - 3 34,592,282 $ 37,419,202 3,600 - - 3,724,491 3,005,043 - - 1,816,654 1,284,558 12,831,946 12,831,946 10,840,705 2,490,820 2,490,820 2,423,295 34,334,786 34,334,786 34,774,850 1 701.083 $ 12.831 946 $ 36,825,606 $ 89 790 979 $ 89 747 653 ' $ - $ - $ - $ 894,599 $ - - 1,515,319 1,645,632 - - - 153,976 875 1,816,654 1,284,558 ' 562,938 239,992 104,592 - - 104,592 83,518 ' 357,828 - - - - 36,450,000 357,828 36,450,000 291,670 36,710,000 233,364 239,146 144,561 - - 142,242 142,242 170,181 - - - 175,330 463,295 36,825,606 42,083,318 40,899,418 I - 12,831,946 - 12,831,946 10,840,705 _ - 717,796 730,141 ' 2,490,820 2,423,295 - - - 3,913,958 6,353,876 237,788 - - 237,788 247,513 ' - - 19,786,128 21,948,754 - - 969,000 969,000 ' _ 500,000 500,000 - - 280,000 280,000 - - - 2,680,000 2,680,000 - 3,300,225 1,874,951 - 237,788 12,831,946 47,707,661 48,848,235 $ 701,083 $ 12,831,946 $ 36.825 606 3 89 790,979 $ 89,747,653 I I 3 CITY OF ROSEMEAD, CALIFORNIA COMBINED STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - ALL GOVERNMENTAL FUND TYPES Year ended June 30, 1995 Governmental Fund Tvoes Special Debt Capital Revenues General Revenue Service Projects Property tares and special assessments $ - $ 386,814 $ - $ 3,411,909 Other taxes 3 907 616 - 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 Intergovernmental Capital outlay Debt service: Principal Interest Certificate refunding Issuance costs Arbitrage rebate expense (credits) Investment loss Revenue over (under) expenditures Other Financing Sources (Uses) Proceeds from sale of bonds, net of discounts of $701,815 Payments to refunding escrow agent Operating transfers: From other funds (To) other funds Revenue and other financing sources over (under) expenditures and other financing (uses) Fund Balance, beginning Restatement of beginning fund balance (Note 2) Fund Balance, ending See Notes to Financial Statements. 699,234 - - - 2,928,590 3,804,953 - _ 548,962 16,000 - _ 280,636 37,333 - _ 289,451 266,945 202,817 624,549 146,262 41,671 45,697 8,800,751 4,553,716 202,817 4,082,155 1,725,808 119,497 - 72,899 4,335,271 331,600 87,381 2,960,435 - 1,353,137 39,852 - - 1,767,173 134,224 - - 1,204,558 885,658 - - - 175,330 53,433 1,637,238 - 23,071 260,000 2,019,153 - - (153,976) - 461,876 1,902,724 9,213,476 6,530,528 2,279,153 3,373,185 (412,725) (1,976,812) (2,076,336) 708,970 1,371,557 2,314,443 2,143,861 - (252,106) (2,486,594) (3,091,161) 1,119,451 (172,151) 2,143,861 (3091161) 706,726 (2,148,963) 67,525 (2,382,191) 6,265,414 7,122,554 2,423,295 21,948,754 415,248 - - 219,565 $ 7,387,388 $ 4,973,591 $ 2,490,820 $ 19,786,128 1 11 11 u 11 11 1 I I 1 r r 1 r 1 1 1 r r 1 1 1 1 1 r 1 Total (Memorandum Only) 1995 1994 3 3,798,723 $ 3,528,061 3,907,616 4,011,829 699,234 812,096 6,733,543 5,985,542 564,962 429,932 317,969 338,786 1,383,762 1,887,659 233,630 307,415 17,639,439 17, 301,320 1,918,204 2,545,662 4,666,871 4,596,592 4,400,953 4,096,433 39,852 17,665 1,901,397 1,719,424 2,090,216 2,092,838 175,330 175,295 1,713,742 1,897,838 260,000 2,055,000 2,019,153 1,137,474 - 2,651,000 183,403 (153,976) (59,745) 2,364,600 - 21,396,342 23,108,879 (3,756,903) (5,807,559) - 36,008,184 - (17,034,949) 5,829,861 6,032,610 ('5,829,861) (6,032 610) 18,973,235 (3,756,903) 13,165,676 37,760,017 24,594,341 634,813 - $ 34,637,927 $ 37,760,017 5 CITY OF ROSEMEAD, CALIFORNIA COMBINED STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL - GENERAL, SPECIAL REVENUE, DEBT SERVICE AND CAPITAL PROJECTS FUNDS Year ended June 30, 1995 General Spe cial Revenue Over Over (Under) (Under) Revenues Budget Actual Budget Budget Actual Budget Property taxes and special assessments S - $ - S - - $ 380,000 S 386,814 $ 6,814 Other taxes 3,907,800 3,907,616 (184) - - - Licenses and permits 934,600 699,234 (235,366) - - - Intergovemmental 2,302,110 2,928,590 626,480 4,053,270 3,804,953 (248,317) Charges for services 439,750 548,962 109,212 8,300 16,000 7,700 Fines, forfeitures and penalties 233,000 280,636 47,636 90,000 37,333 (52,667) Use of money and property 255,540 289,451 33,911 126,014 266,945 140.931 Other 184,700 146,262 (38,438) 10,650 41,671 31,021 8,257,500 8,800,751 543,251 4,668,234 4,553,716 (114 518) Expim tues Current: General government Public safety Public works Public health Public recreation Community service Intergovernmental Capital outlay Appropriations reserves Debt service: Principal Interest Arbitrage rebate expense (credits) Investment loss Revenue over (under) expenditures Other Financing Sources (Uses) Operating transfers: From other funds (To) other funds Revenue and other financing sources over (raider) expenditure and other financing (uses) I I I I 1,694,875 1,725,808 30,933 18,600 119,497 100,897 4,405,090 4,335.271 (69,819) 408,750 331,600 (77,150) 66.620 87,381 20,761 3,419,400 2,960,435 (458,965) ' 45,400 39,852 (5,548) - - 1.848,940 1,767,173 (81,767) 128,630 134,224 5,594 1,111,956 1,204,558 92,602 1,062,770 885.658 (177,112) ' 60,140 53,433 (6,707) 2,668,500 1,637,238 (1,031,262) 100,000 - (100,000) - - - 461,876 461,876 9,333,021 9,213 476 (119,545) 7,706,650 6,530,528 (1,176,122) (1,075,521) (412725) 662,796 (3038416) (1976812) 1,061,604 1,097,300 1,371,557 274,257 2,833,100 2,314,443 (518,657) - (252,106) (252 106) (2,983,100) 2,486,594) 496,506 1,097,300 1,119,451 22,151 (150,000) (172,151) (22151) S 21,779 706,726 S 684,947 $ (3,188,416) (2,148,963)$ 1,0394453 Fund Balance, beginning 6,265,414 Restatement of beginning fund balance (Note 2) 415,248 Fund Balance, ending $ 7,387,388 See Notes to Financial Statements. 7,122,554 $ 4,973,591 1 I 1 Debt Service _ Capital Projects Over Over (Under) (Under) Budget Actual Budget Budget Actual Budget $ - $ - S - S 3,170,000 $ 3,411,909 $ 241,909 35,000 202,817 167,817 602,500 624,549 22,049 - 136 000 45,697 (90 303) 35,000 202,817 167,817 3,908,500 4,082,155 173,655 - - - 55,400 72,899 17,499 - - = 4,002,350 1,353,137 (2,649,213) - - - 175,300 175,330 30 ' - - 27,750 23,071 (4,679) 260,000 260,000 2,019,153 2,019,153 (153,976) (153,976) 1902 724 1,902,724 2,279,153 2,279,153 4,260,800 3,373,185 (887615) (2,244,153) (2,076,336) 167,817 (352 300) 708,970 1,061,270 2,279,153 2,143,861 (135,292) - - (3226453) (3091161) 135,292 2,279,153 2,143,861 (135 292) (3,226.453) (3,091,161) 135,292 $ 35,000 67,525 $ 32,525 $ 1,578,753) (2,382,191)$ 141961562 2,423,295 21,948,754 219,565 $ 2,490,820 $ 19,786,128 (continued) 7 CITY OF ROSEMEAD, CALIFORNIA COMBINED STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL- GENERAL, SPECIAL REVENUE, DEBT SERVICE AND CAPITAL PROJECTS FUNDS (CONTINUED) Year ended June 30, 1995 Total Over (Under) Revenue Budget Acfual Budget Property taxes and special assessments $ 3,550,000 $ 3,798,723 $ 248,723 Other taxes 3,907,800 3,907,616 (184) Licenses and permits 934,600 699,234 (235,366) Intergovernmental 6,355,380 6,733,543 378,163 Charges for services 448,050 564.962 116,912 Fines, forfeitures and penalties 323,000 317,969 (5,031) Use of money and property 1,019,054 1,383,762 364,708 Other 331,350 233,630 (97,720) 16,869,234 17,639,439 770,205 Expenditures Current: General government Public safety Public works Public health Public recreation Community service Intergovemmental Capital outlay Appropriations reserves Debt service: Principal Interest Arbitrage rebate expense (credits) Investment loss 1,768,875 1,918,204 149,329 4,813,840 4,666,871 (146,969) 7,488,370 4,400,953 (3,087,417) 45,400 39,852 (5,548) 1,977,570 1,901,397 (76,173) 2,174,726 2,090,216 (84,510) 175,300 175,330 30 2,756,390 1,713,742 (1,042,648) 100,000 - (100,000) 260,000 260,000 2,019,153 2,019,153 - - (153,976) (153,976) - 2,364,600 2,364,600 23,579,624 21,396,342 (2,183,282) Revenue over (under) expenditure 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 Restatement of beginning fund balance (Note 2) Fund Balance, ending (6,710,390) (3,756,903) 2,953,487 6,209,553 5,829,861 (379,692) (6,209,553) (5,829.861) 379,692 I 1-1 I L 1 1 I $ (6,710,390) (3,756,903)$ 2,953,487 37,760,017 ' 634,813 $ 34,637,927 I I CITY OF ROSEMEAD, CALIFORNIA STATEMENT OF REVENUE, EXPENSES AND CHANGES IN FUND BALANCE PENSION TRUST FUND Year Ended June 30, 1995 Operating revenue, interest and other investment income $ 14,671 ' Operating expenses: Administrative fees 3,674 Pension benefits 20 722 , 24,396 Net (loss) (9,725) ' Fund Balance be i i , g nn ng 247,513 Fund Balance, ending $ 237,788 See Notes to Financial Statements. 9 CITY OF ROSEMEAD, CALIFORNIA STATEMENT OF CASH FLOWS PENSION TRUST FUND Year Ended June 30,1995 Cash Flows From Operating Activities Net (loss) $ (9,725) Adjustments to Reconcile Net (Loss) to Net Cash (Used In) Operating Activities: Administrative expenses payable 3,674 Unrealized interest and investment income (14,671) Net cash (used in) operating activities (20,722) Cash Flows Provided By Investing Activities Proceeds from the sale and maturity of annuity contracts 20,722 Net increase in cash and cash equivalents _ Cash, beginning Cash, ending $ See Notes to Financial Statements 10 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 Agency has the same fiscal year as the City. The component unit financial statements can be obtained from the City Clerk. 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 and financing of low and moderate income housing. It is a California nonprofit benefit corporation organized under Section 501(c)(3) of the Internal Revenue Code. After due consideration of each criteria, especially the substance of the City's relationship with these organizations/entities and using professional judgment, management has decided to exclude certain organizations and activities from the City's combined financial statements because significant oversight responsibility does not exist. The Fire Protection District, the Library District and the County Flood Control District are not considered component units of the City because the City's governing body is not financially accountable for these legally separate organizations. Nature of operations: City of Rosemead: The City is a no property tax City which 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 govemment 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. 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. Govemmental 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, revenues are 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 revenues available if they are collected within 60 days after year end. Expenditures are recorded when the related fund liability is incurred, except for munatured 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. 11 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) ' In determining when to recognize intergovernmental revenues (grants, subsidies and shared revenues), the legal and contractual requirements of the individual programs are used as guidance. There are, however, essentially two bases for thi s revenue recognition. In one, monies must be expended on the specific purpose or project before any amounts will be , paid to the City; therefore, revenues are recognized based upon the expenditures recorded. In the other, monies 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 revenues at the time of receipt, or earlier if they meet the criterion of availability. Other major revenues that are determined to be susceptible to ' accrual include taxes and interest. Major revenues that are determined to not be susceptible to accrual because they are either not available soon enough to pay liabilities of the current period or are 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. Under the accrual basis of accounting, revenues are recognized when earned and expenses are recorded when incurred. Governmental Fund Types: , The General Fund accounts for all financial resources except those required to be accounted for in another fund. These resources are devoted to financing the general services that the City performs for its citizens. Special Revenue Funds account for the proceeds of specific revenue sources (other than special assessments, expendable trusts and major capital projects) that are legally restricted to expenditures for specified purposes. The Special Revenue Funds and their purposes are as follows: ' The Traffic Safety Fund accounts for the receipt of vehicle code fines which are expended for traffic safety enforcement ' The State Gas Tax Fund accounts for funds collected from the State of California which are used for street construction, street maintenance, engineering and administrative costs. ' The Air Quality Management 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. ' I 12 I 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 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. 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 Federal Highway Grants Fund accounts for funds received pursuant to the Federal Highway/Transportation Acts, which are used for pre-approved highway projects. Application and funding processes are administered by Caltrans. ' The R. Z'Berg/Harris Grant Fund accounts for a State grant for preapproved park projects. The California HIldlife 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. 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 i 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. The Agency Fund accounts for the assets held in a trustee capacity or as an agent. The cash being held primarily represents amounts placed on deposit for refundable permits and performance bonds and deferred compensation plans for qualified employees. 1 13 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) ' Account Groups: The General Fixed Assets Account Group is used to account for fixed assets not accounted for in proprietary or trust funds. 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 carvings 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 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 eneral fixed as t hi h h , g s w se c were purc ased 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. V i d ' acat on pay an 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, 1995 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 14 1 I CITY OF ROSEMEAD, CALIFORNIA NOTES TO FINANCIAL STATEMENTS Note 1. Reporting Entity, Nature of Operations, Description of Funds and Account Groups, and Significant Accounting Policies (Continued) "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 interfand 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 1994 totals presented in the "Memorandum Only" columns are included to provide a summarized comparison with comparable 1995 amounts and are not intended to present all information necessary for a fair presentation of financial position and results of operations in accordance with generally accepted accounting principles. Note 2. Current Accounting Development and Retroactive Restatement Disclosure About Taxoaver-Assessed Tax Revenues: Effective July I, 1994, the City adopted Governmental Accounting Standards Board Statement No. 22, "Accounting for Taxpayer-Assessed Tax Revenues in Governmental Funds," which requires the City to recognize revenues from taxpayer-assessed taxes, such as sales, when they become both measurable and available. As a result of the adoption of Statement No. 22, the fund balance of the General Fund has been retroactively restated to L recognize the accrual of tax revenues. The effect of this restatement was to increase the fund balance by $415,248 from the amounts previously reported. ' Restatement: The beginning balance in the Capital Projects Fund has been retroactively restated to correct for prior year property tax revenues. The effect of this restatement was to increase fund balance by $219,565 from the amounts previously reported. Note 3. Budget Matters The annual budget adopted by the City Council provides for the general operation of the City. It includes proposed expenditures and estimated revenues for all governmental fund types. Actual expenditures may not exceed appropriations at the department level. 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. Budget amendments were nominal for the year. 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 15 I CITY OF ROSEMEAD, CALIFORNIA NOTES TO FINANCIAL STATEMENTS t Note 4. Cash and Investments The components of cash and investments at Jane 30, 1995 are as follows: i Cash in bank $ 1,390,629 Time certificates of deposit 2,094,941 Investments 2,929,083 Cash with fiscal agent 2,389,776 Guaranteed issuance contracts 17,785,850 ' Investment in State Treasury's Investment Pool 7,418,164 Investment in annuity contracts 583,839 $ 34,592.282 , Cash: At year end, the carrying amount of the City's and Agency's deposits was $3,485,570 and the bank balance was $3,679,953. Of the bank balance, $252,815 was covered by federal depository insurance, and $3,427,138 was uninsured and uncollateralized. The balance consisted of the following: , Cash in bank $ 1,390,629 Time certificates of deposit 2,094,941 $ 3,485,570 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 a City's and Agency's deposits by pledging government securities as collateral. The market value of pledged securities must equal at least 110% of a City's deposits. California law also allows financial institutions to secure City deposits by pledging first trust deed mortgage notes having a 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 included $237,788 which is invested in an annuity contract by the Trust and Agency Funds. Investments also ' included $17,785,850 of amounts invested in various Guaranteed Insurance Contracts which accrue interest quarterly at interest rates ranging from 7.18% to 7.41%, maturing through October 1, 1999. I I LJ 16 I CITY OF ROSEMEAD, CALIFORNIA NOTES TO FINANCIAL STATEMENTS Note 4. Cash and Investments (Continued) Other investments are categorized in the following schedule to give an indication of the leve l 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 $ $ $ 872,179 $ 872,179 $ 873,668 State and municipal bonds 871,794 871,794 862,727 Corporate bonds 1,185,110 1,185,110 1,099,381 $ $ $ 2,929.083 2,929,083 2,835,776 Cash with fiscal agent 2,389,776 2,389,776 Guaranteed Insurance Contracts 17,785,850 17,785,850 1 Investment in State Treasurer's Investment Pool 7,418,164 7,418,164 Total other investments $ 30,522,873 $ 30,429,566 The three preceding risk description categories are defined as follows: 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 I I 1 I I 11 I 2 Uninsured and unregistered investments for which the securities are held by counterparty'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 counterparty's trust department (if a bank) or agent, but not in the City's name Annuity contracts and cash in bank include $346.051 and $11,777, respectively, in the City's deferred compensation plan as of June 30. 1995. The annuity contracts are recorded at market value. Investment Loss: Prior to February 1995, the City and Agency's investments included corporate and government bonds with maturities extending through December 2043. At this time, the carrying value of these investments approximated $19,723,000 with a market value of approximately $17,398.000. In December 1994, the City and Agency affected a change in investment policy in order to conform to maturity limitations in the government code and to improve liquidity and reduce market value risk associated with longer term investments. As a result of this change, the City and Agency sold this portfolio. resulting in a loss for the Agency due to a market value decline of $2.364,000. The proceeds from the sale were reinvested in the Guaranteed Investment Contracts referred to above. 17 1 CITY OF ROSEMEAD, CALIFORNIA NOTES TO FINANCIAL STATEMENTS Note 5. Receivables Receivables as of June 30, 1995 consist of the following Special Debt Capital Trust and General Revenue Service Projects Agency Total Property tax increment $ . $ , $ - S 237,683 $ - $ 237,683 Accrued interest 84,976 - 100,394 60,333 245,703 Due from local utility companies r'1 717,796 - - - 717,796 Due from other governmental agencies 728,909 1,514,753 - - - 2,243,662 Transient occupancy tax 214,694 - - - - 214,694 Other 61,353 3,600 64,953 s 1.807,728 S 1.514,753 S 100.394 S 298,016 3,600 $ 3,724.491 W 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 $493,801. 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 vear ended June 30, 1990, the Agenev 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 durine 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-heating 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 [his receivable from the utility company in 15 annual installments of $20,773, with the final installment due June 30, 2006. Note 6. Interfund Receivables and Pavables Interfund receivables and payables as of June 30, 1995 are as follows Interfund Funds Receivables Pa abler General Fund $ 1.126.693 $ Special Revenue Funds: Tragic Safety State Gas Tax Local Transportation Fund Community Development Block Grant Low-Moderate Income Housing Set-Aside Fund Public Transportation Fund R.Z' Berg/Harris Grant California Wildlife Grant Capital Projects Fund 4,681 20,875 - 43,955 - - 834,362 423,574 - 201,557 238,370 17,253 72,061 689,961 1,166,727 649,052 I I i 1 I I I If I I I C Trust and Agency Fund Types 18 $ 1.816.654 $ 1,816,654 1 ' CITY OF ROSEMEAD, CALIFORNIA NOTES TO FINANCIAL STATEMENTS Note 7. Property and Equipment Changes in property and equipment during the year ended June 30, 1995 were as follows: Balance Balance June 30, 1994 Acquisitions Disposals June 30, 1995 Land $ 2,893,234 $ - $ - $ 2,893,234 Buildings and improvements 5,626,998 1,757,371 - 7,384,369 Vehicles 241,891 6,630 7,581 240,940 Furniture and office equipment 832,382 149,458 - 981,840 Special equipment and machinery 494,247 - 494,247 Other improvements 751,953 85,363 - 837,316 $ 10,840,705 $ 1,998,822 $ 7,581 $ 12,831,946 Note 8. 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 contributions to this plan for the fiscal year ended June 30, 1995. 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 $346,051 as of June 30, 1995. 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, 1994 was $1,152,395 and total payroll was $1,710,384. 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 50 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. 1 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. I 19 I CITY OF ROSEMEAD, CALIFORNIA ' NOTES TO FINANCIAL STATEMENTS ' Note 8. Employee Pension Plans (Continued) The total PERS pension benefit obligation was computed as of June 30, 1994 as part of an actuarial valuation performed. Significant actuarial assumptions that will be 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. , The effect on the pension benefit obligation caused by changes in benefit provisions and actuarial assumptions reflected in the June 30, 1994 pension benefit obligation is a decrease of $219,996. A comparison of the pension benefit obligation applicable to the City's employees with the plan assets as of June 30, 1994 is as follows: P i ens on benefit obligation: Retirees and beneficiaries receiving benefits and terminated employees not yet receiving benefits $ 333,630 Current employees: Accumulated employee contributions including allocated investment earnings $ 137,640 Employer-financed, vested 1,302,500 ' Employer-financed, non-vested 40,581 1,480,721 Total pension benefit obligation $ 1,814,351 Net assets available for benefits, at cost (market value $1,575,262) 1,580,002 Unfunded pension benefit obligation $ 234,349 , Acmariallv 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 ends on June 30, 2000. 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. Lam. 1 I 20 i CITY OF ROSEMEAD, CALIFORNIA NOTES TO FINANCIAL STATEMENTS 1 Note 8. Employee Pension Plans (Continued) The contribution to the plan for the fiscal year ended June 30, 1995 totaling $178,518 was made in accordance with actuarially determined requirements computed through an actuarial valuation performed as of June 30, 1994. The contribution consisted of. Normal cost (6.761% of current covered payroll) $ 77,913 Amortization of the unfunded actuarial accrued liability (8.73% of current covered payroll) 100,605 $ 178,518 Amounts contributed on behalf of. City (8.491% of current covered payroll) $ 97,850 Employees (7% and 9% of current covered payroll) 80,668 $ 178,518 Trend information: Trend information gives an indication of the progress made in accumulating sufficient assets to pay benefits when due. Historical information for the years available is as follows: Unfunded (Overfunded) Pension Benefit Contribution to Unfunded Obligation System Net Assets (Overfunded) as Percentage of as Percentage of Year Ended Available Pension Benefit Percentage Pension Benefit Annual Covered Covered Annual Covered Annual June 30, for Benefits Obligation Funded Obligation Payroll Payroll Payroll 1993 $ 1,148,500 $ 288,240 398.3 % $ (860,260)$ 1,318,110 (65.3)% 1.4 % 1994 1,580,000 1,814,350 871 234,340 1,301,610 18.0 1.4 Showing unfunded pension benefit obligation as a percentage of annual covered payroll approximately adjusts for the effects of inflation for analysis purposes. Note 9. 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 includable compensation. The deferred compensation is not available to employees until termination, retirement, death or unforeseeable emergency. The deferred compensation and accumulated earnings thereon totaled $357,828 at June 30, 1995. t 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 being handled by an insurance company. 21 CITY OF ROSEMEAD, CALIFORNIA NOTES TO FINANCIAL STATEMENTS i ' Note 10. 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 f li purpose o poo ng 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 will be shared pro-ratably among the ool u to a maxim m f $500 000 A p p u o , . ny losses above $500,000 are covered by excess insurance. 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. Note 11. Long-Terra 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. Series 1993A bonds mature on or after October 1, 2001, and Series 1993B bonds mature on or after October 1, 1995. Defeasance of Prior Debt: The Agency has advance refunded two 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, 1995, $21.635,000 of bonds outstanding are considered defeased. Compensated absences: That portion of the liability for the vested compensated absences totaling $233,364 which is not expected to be paid from available resources is reported in the General Long-term Debt Account Group. Other lone-term debt: The City has included amounts in the long-term debt group of accounts for the litigation settlement and amounts owed the State of California, which were a result of the State budget (see Note 12). , i I 22 1~ I 11 CITY OF ROSEMEAD, CALIFORNIA NOTES TO FINANCIAL STATEMENTS Note 11. Long-Term Debt (Continued) I The following is a summary of the general long-term debt transactions for the year ended June 30, 1995: if Balance, June 30, 1994 $ Payments of principal Increase Additions Reductions in settlement Balance, June 30, 1995 $ California Tax Allocation fidget Trailer Bonds Series :ill SB1135 1993A 175,330 $ (175,330) Accrued Tax Allocation Vacation and Bonds Series Litigation Compensatoq 19938 Settlement Time 2,435,000 $ (260,000) Total 170,181 $ 142,634 $ 37,198,145 - - (435,330) - 90,730 90,730 91 (27()1() The annual requirements, principal and interest to amortize the outstanding debt as of June 30 , 1995 are as follows: Accrued Series 1993 Vacation and ' A and B Litigation Compensatory During the Year Ending June 30, Bonds Settlement Time Interest Totals 1996 $ 265,000 $ 29,895 $ 233,634 $ 2,022,350 $ 2,550,879 1997 280,000 35,574 - 2,006,477 2,322,051 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 Years thereafter 34,970,000 41,800,090 76,770,090 $ 36,450,000 $ 142,242 $ 233,634 $ 51,741,457 $ 88,567,333 Note 12. Budget Overexpenditures and Deficit Expenditures exceeded appropriations for the year ended June 30, 1995 in the following specia l revenue funds: Amount of Over- Appropriations Ex penditures e xpenditures Local Transportation Fund $ 19 00 , 0 $ 113,218 $ 94,218 Community Parklands Grant Fund 22,550 23,215 665 Low-Moderate Income Housing Fund - 150 150 Federal Highway Grant 100,000 196,844 96,844 California Wildlife Grant 88,830 93,217 4,387 The Rosemead Housing Development Corporation has a deficit fund balance of $48,235. The deficit balance originated at the time of major construction activities. Construction is now complete. It is anticipated that revenues will exceed _ expenditures in future years. 23 CITY OF ROSEMEAD, CALIFORNIA NOTES TO FINANCIAL STATEMENTS Note 13. 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 revenues for low and moderate income housing. The Agency has made findings that, for the year ` ended June 30, 1991, it was allowed to defer funding of the set-aside. As of June 30, 1995, the accumulated set-aside amount not yet funded was $5,504,525. As required by law, the Agency devised a plan to fund the accumulating amount. The fiscal year ended June 30, 1994, 1995 and 1996 obligations are deferred until the fiscal year ending June 30, 2023, as provided by the Agency's adoption of the housing deficit repayment plan. 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. 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 at various interest rates not to exceed 5%. The present value of the remaining payments as of June 30, 1995 was $142,242. This amount is included in the City's long-term debt group of accounts as of June 30, 1995. 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 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 cities asserting that, if they are liable, then the cities are proportionately liable. 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 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 October 13, 1995, the agreement continues to remain on hold. Note 14. 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. 11 I 24 I I McGLADREY&PULLEN, LLP Certified Public Accountants and Consultants l' INDEPENDENT AUDITOR'S REPORT ON THE SCHEDULE OF FEDERAL FINANCIAL ASSISTANCE To the Honorable Mavor and ' Members of the City Council Citv of Rosemead Rosemead. California We have audited the general purpose financial statements of the Citv of Rosemead, California, as of and for the year ended June 30, 1995 and have issued our report thereon, dated October 13, 1995. 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. 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 I 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. San Bernardino, California October 13, 1995 1, 1. 25 I I CITY OF ROSEMEAD, CALIFORNIA SCHEDULE OF FEDERAL FINANCIAL ASSISTANCE Year Ended June 30, 1995 Catalog of Federal Pass- Domestic Through Assistance Grantor's Federal Grantor/Pass-Through Grantor/Program Title Number Number Expenditures U.S. Department of Housing and Urban Development: Passed through Los Angeles County Community Development Commission - Community Development Block Grant Program - Small Cities Grants 14.218 B92UC06-0505 $ 1.329.818 11 I t I I 26 1 I 1 I H i SECTION II COMPLIANCE MATTERS AND INTERNAL ACCOUNTING AND ADMINISTRATIVE CONTROLS 1 I 1' 1 I I '1 i f I 1 1 McGLADREY&PULLEN, LLP Certified Public Accountants and Consultants 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, 1995, and have issued our report thereon, dated October 13, 1995. 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. 1 I L 1 1 1 I 1 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. Material instances of noncompliance are failures to follow requirements, or violations of prohibitions. contained in statutes, regulations, contracts, or grants that cause us to conclude that the aggregations of the misstatements resulting from those failures or violations is material to the financial statements. The results of our tests of compliance disclosed the material instance of noncompliance which is described in the accompanying schedule of compliance findings and questioned costs. The effect of the compliance finding has been corrected in the City of Rosemead's 1995 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 via the Los Angeles County Community Development Commission and 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. San Bernardino, California October 13, 1995 27 I MCGLADREY&PULLEN. LLP Certified Public Accountants and Consultants INDEPENDENT AUDITOR'S REPORT ON INTERNAL CONTROL STRUCTURE To the Honorable Mavor and Members of the City Council City of Rosemead Rosemead. California 1 1 1 1 1 11 1 We have audited the general purpose financial statements of the City of Rosemead, California, as of and for the year ended June 30, 1995, and have issued our report thereon. dated October 13, 1995. 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. 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, 1995, 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. 28 1 We noted a certain matter involving the internal control structure and its operations that we consider to be a reportable condition under standards established by the American Institute of Certified Public Accountants. ' Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation of the internal control structure that. in our judgment, could adversely affect the City's ability to record, process, summarize, and report financial data consistent with the assertions of ' management in the financial statements. The matter that we consider to be a reportable condition is described in the accompanying schedule of compliance findings and questioned costs. A material weakness is a reportable 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 or 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. Our consideration of the internal control structure 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. However, we believe the reportable condition described in the accompanying schedule of compliance findings and questioned costs is a material weakness. This report is intended for the information of management of the City of Rosemead, California. the United States Department of Housing and Urban Development via the Los Angeles County Community Development Commission and 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 1 not limited 1 San Bernardino, California October 13, 1995 1 1 1 I 29 H I I. McGLADREY&PULLEN, LLP Certified Public Accountants and Consultants INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE WITH SPECIFIC REQUIREMENTS APPLICABLE TO MAJOR FEDERAL FINANCIAL ASSISTANCE PROGRAMS To the Honorable Mavor and Members of the City Council City of Rosemead Rosemead, California We have audited the general purpose financial statements of the City of Rosemead. Califomia, as of and for the year ended June 30, 1995, and have issued our report thereon, dated October 13, 1995. 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, 1995. 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. I 30 I 1 I ' San Bernardino, California October 13. 1995 I 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 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 a test basis. evidence about the City's compliance with those requirements. We believe that our audit provides a reasonable basis for our opinion. The results of our procedures disclosed an instance of noncompliance with the requirements referred to above, which is described in the accompanying schedule of compliance findings and questioned costs. We considered the instance of noncompliance in forming our opinion on compliance, which is expressed in the following paragraph. In our opinion, except for the instance of noncompliance with the requirements applicable to the U.S. Department of Housing and Urban Development Community Development Block Grant Program referred to in the fourth paragraph of this report and identified in the accompanving schedule of compliance findings and questioned costs, the City of Rosemead. California, complied in all material respects with the requirements governing: types of services allowed or not allowed: reporting; timing of expenditures: environmental reviews: program income; preparation of federal financial reports and claims for advances and reimbursements from information 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 Circular A-87 and OMB's Common Rule that are applicable to each of its major federal financial assistance programs for the vear ended June 30. 1995. This report is intended for the information of management of the City of Rosemead, California, the United States' Department of Housing and Urban Development via the Los Angeles County Community Development Commission and 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. 31 /lGSG/ LGl~ MCGLADREY&PULLEN, LLP Certified Public Accountants and Consultants t ' INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE WITH THE GENERAL REQUIREMENTS APPLICABLE TO FEDERAL FINANCIAL ASSISTANCE PROGRAMS I ' 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, 1995, and have issued our report thereon dated October 13, 1995. ' 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, 1995: 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. 1 32 ' This report is intended for the information of management of the City of Rosemead. California, the United States Department of Housing and Urban Development via the Los Angeles County Community ' Development Commission and 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. I ' San Bernardino, California October 13, 1995 I I u I 33 A! e,a~ 11 L L/~ 1 McGLADREY&PULLEN, LLP Certified Public Accountants and Consultants INDEPENDENT AUDITOR'S REPORT ON THE INTERNAL CONTROL STRUCTURE USED IN ADMINISTERING FEDERAL FINANCIAL ASSISTANCE PROGRAMS ' To the Honorable Mavor 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, 1995. and have issued our report thereon dated October 13, 1995. 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 13. 1995. ' 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. 1995, we considered the City's intemal 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 13, 1995. LJ I 11 I 34 r r r 1 1 1 i r r r 1 r 1 r 1 r r 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 detefiorate. For the purpose of this report, we have classified the significant internal control structure policies and procedures used in administering federal financial assistance programs in the following categories: 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 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 35 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, 1995, 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. We noted a certain matter involving the internal control structure and its operations that we consider to be a reportable condition under standards established by the American Institute of Certified Public Accountants. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation of the internal control structure that, in our judgment, could adversely affect the City's ability to record, process, summarize, and report financial data consistent with the assertions of management in the financial statements. The matter that we consider to be a reportable condition is described in the accompanying schedule of compliance findings and questioned costs. This matter is related to findings from an audit by the Department of Housing and Urban Development. , 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 noncompliance with laws and , regulations that would be material to a federal financial assistance program may occur and not be detected within a timely period by employees in the nonnal course of performing their assigned functions. 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. However, we believe the reportable condition described in the accompanying schedule of compliance findings and questioned costs is a material weakness as defined above. That condition was considered in determining the nature, timing, and extent of the , procedures to be performed in our audit of the City's compliance with requirements applicable to its major federal financial assistance program for the year ended June 30, 1995, and this report does not affect our report thereon, dated October 13, 1995. I 1 36 H ' This report is intended for the information of management of the City of Rosemead, California, the United States Department of Housing and Urban Development via the Los Angeles Countv Community Development Commission. and 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. I San Bernardino, California October 13, 1995 I I I I I i i 37 I ' CITY OF ROSEMEAD SCHEDULE OF COMPLIANCE FINDINGS AND QUESTIONED COSTS Year Ended June 30, 1995 Department of Housing and Urban Development ("HUD") Questioned FINDING #1 Costs Community Development Block Grant Program $320,000 Condition: The City's Community Development Block Grant ("CDBG") program was monitored by the Los Angeles Community Development Commission ("CDC") for the final two years of the City's contract with the CDC as a part of the CDBG "urban county" program (FY 1992/93 and 93/94.) Under the "urban county" program, the City of Rosemead was required to adhere to CDC handbook guidelines and national HUD guidelines with respect to the expenditure of CDBG funds. In November 1994, the CDC made a determination that the City's documentation surrounding the expenditure of CDBG funds was not sufficient to meet CDC handbook guidelines. As of June 30, 1995, the estimated total of CDBG expenditures disallowed by the CDC for various projects is approximately $320,000 and this has been accrued in the unreserved general fund of the general purpose financial statements. Criteria: Federal and CDC guidelines require that funds received for the CDBG program during the time the City of Rosemead was a participant in the "urban county" program must be expended in accordance with federal HUD guidelines and CDC handbook guidelines. In addition, those guidelines specify acceptable procurement procedures for services funded by CDBG and state that adequate documentation be maintained to support the City's efforts to serve eligible clients. Cause: The contract staff member responsible for procurement and documentation of services and programs funded by CDBG funds did not comply with accepted CDC handbook regulations and standards during the final two years of the City's participation in the ' "urban county" program. Effect: The use of monies on CDBG projects in which sufficient documentation and procurement practices is not maintained results in disallowed costs, thereby requiring the City to remit to the CDC funds totaling an amount equal to the costs disallowed by the CDC for the program years 1992/93 and 93/94. Those funds, in turn, will be credited to the City's CDBG reserve account for use in future projects. 38 CITY OF ROSEMEAD SCHEDULE OF COMPLIANCE FINDINGS AND QUESTIONED COSTS (CONTINUED) Year Ended June 30, 1995 Department of Housing and Urban Development ("HUD") FINDING #1 (Continued) Recommendation: The City should negotiate the final amount to be reimbursed to the CDC and remit this amount to the State. The City should also review the definition of eligible projects, review documentation requirements surrounding eligibility of clients served and procurement practices and educate the individuals responsible for the use of the funds in order to ensure sufficient documentation is maintained and proper procurement practices are followed. City Response: The City has been in negotiation with Department of Housing and Urban Development (HUD) and CDC regarding these issues since it became aware of a question as to eligibility of clients and use of proper procurement practices. The City continues to work with the State and Citv employees in order to determine which projects are eligible as defined by the CDBG, requirements for sufficient documentation and definition of proper procurement practices. The final determination of the disallowed costs will be determined, remitted to the CDC and deposited in the City's CDBG reserve account for use in future years. 39 Questioned Costs u' I I I I I I I I I I 1 I rl I 1