Loading...
1992 City Compliance ReportsLJ I CITY OF ROSEMEAD, CALIFORNIA ' COMPLIANCE AND FINANCIAL REPORT JUNE 30, 1992 u h h L I J 1 I I I CONTENTS ' SECTION I - GENERAL PURPOSE FINANCIAL STATEMENTS ' ' INDEPENDENT AUDITORS REPORT ON THE GENERAL PURPOSE FINANCIAL STATEMENTS 1 GENERAL PURPOSE FINANCIAL STATEMENTS Combined balance sheet, all fund types and account groups 2 Combined statement of revenue, expenditures and changes ' in fund balances, all governmental fund types Combined statement of revenue, expenditures and changes 3 in fund balances - budget and actual - general, special revenue and debt service fund types 4 ' Statement of revenue, expenses and changes in fund balance, pension trust fund 5 Statement of cash flows, pension trust fund 6 ' Notes to financial statements 7-22 ' ' INDEPENDENT AUDITORS REPORT ON THE SCHEDULE OF FEDERAL FINANCIAL ASSISTANCE 23 SCHEDULE OF FEDERAL FINANCIAL ASSISTANCE 24 I H I C O N T E N T S, Continued ' SECTION II - COMPLIANCE MATTERS AND INTERNAL ACCOUN'T'ING AND ADMINISTRATIVE CONTROLS REPORTS REQUIRED BY THE GOVERNMENTAL ' AUDITING STANDARDS Independent auditors' government auditing standards report ' on compliance Independent auditors' report on internal control structure 25 and 26 27 and 28 REPORTS REQUIRED BY THE SINGLE AUDIT ACT AND OMB CIRCULAR A-128 Independent auditors' report on: Compliance requirements applicable to major federal ' financial assistance programs 29 and 30 Compliance with the general requirements applicable to ' federal financial assistance programs 31 and 32 The internal control structure used in administering federal financial assistance programs 33 - 35 C 1 F, M MCGLADREY & PULLEN Certified Public Accountants and Consultants INDEPENDENT AUDITORS' 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 accompanying general purpose financial statements of the City of Rosemead, California, as of and for the year ended June 30, 1992, 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. I We conducted our audit in accordance with generally accepted auditing standards. 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, 1992, and the results of its operations and cash flows of its pension trust fund for the year then ended in conformity with generally accepted accounting principles. Pasadena, California October 23, 1992 2r I r - 1 - I SECTION I - GENERAL PURPOSE FINANCIAL STATEMENTS I I I CITY OF ROSEMEAD, CALIFORNIA COMBINED BALANCE SHEET ALL FUND TYPES AND ACCOUNT GROUPS June 30, 1992 ASSETS AND OTHER DEBITS Cash and cash investments Cash and investments with fiscal agent Other investments Investments in deferred compensation plans Investments in annuity contracts Receivables Due from other funds Prepaid expenses Property and equipment Amount available in debt service fund Amount to be provided for retirement of general long-term debt Total assets and other debits Governmental Fund Types Special Debt General Revenue Service $ 14,645 $ 4,973,941 $ 3,977,874 4,050,905 4,006,652 1,515,344 854,453 106,027 1,035,201 6,762 - 173,786 - $ 6,716,850 $ 9,886,061 $ 4,112,679 LIABILITIES, MUNICIPAL EQUITY AND OTHER CREDITS LIABILITIES Accounts payable and accrued liabilities $ 1,261,840 $ 141,463 $ Due to other funds - 108,404 Due to other governmental agencies - 237,488 Refundable deposits - Deferred compensation - - - Tax allocation notes - Accrued vacation pay and compensatory time 9,112 - - 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 Undesignated Total municipal equity and other credits Total liabilities, municipal equity and other credits $ 1,270,952 $ 487,355 $ 605,863 - - - 4,112,679 7,401,410 - 4,840,035 1,997,296 $ 5,445,898 $ 9,398306 $ 4312,679 $ 6,716,850 $ 9,886,061 $ 4,112,679 See Notes to Financial Statements. 2- 1 1 Governmental Fiduciary Total Fund Types Fund Types Account Groups (Memorandum Only) Trust General General Capital and Fixed Long-Term Projects Agency Assets Debt 1992 1991 $ 262,938 $ 101,112 $ $ $ 5,352,636 $ 6,366,295 - - 4,006,652 2,668,179 7,819,069 - 15,847,848 11,809,019 - 190,141 190,141 145,016 - 1,073,989 1,073,989 894,927 191,066 - 2,666,890 2,268,917 - 1,041,963 419,920 173,786 - 8,652,669 - 8,652,669 8,356,624 - 4,112,679 4,112,679 2,774,206 16328.873 16,328,873 7,678,283 $ 8,273,073 $ 1,365,242 $ 8,652,669 $ 20,441,552 $ 59,448,126 $ 43381386 $ 584,432 $ $ $ $ 1,987,735 $ 2,471,834 933,559 1,041,963 419,920 - 237,488 243,836 79,805 79,805 78,204 211,448 211,448 168,055 - 20,330,240 20,330,240 10,365,000 111.312 120,424 98,400 $ 1,517,991 $ 291,253 $ $ 20.441,552 $ 24,009,103 $13,845249 $ - $ - $ 8,652,669 $ 1,073,989 $ 8,652,669 $ 8,356,624 605,863 626,008 4,112,679 2,774,206 7,401,410 - 1,073,989 894,927 ' 6,755,082 _ = 6,755,082 fi.837331 9,439,317 7.445.055 6,755,082 $ 1,071989 $ 8,652,669 $ $ 35,439,023 $ 29,536,137 ' $ 8,273,073 $ 1,365,242 $ 8,652,669 $ 20,441,552 $ 59,448,126 $ 43,381386 CITY OF ROSEMEAD, CALIFORNIA COMBINED STATEMENT OF REVENUE, EXPENDITURES AND CHANGES IN FUND BALANCES ALL GOVERNMENTAL FUND TYPES Year Ended June 30, 1992 REVENUE Properly tax increment and special assessments Other taxes Licenses and permits Intergovernmental Charges for services Fines, forfeitures and penalties Use of money and property Other EXPENDITURES Current: General government Public safety Public works Public health Public recreation Community service Capital outlay Debt service: Principal Interest Revenue over (under) expenditures OTHER FINANCING SOURCES (USES) Proceeds from sale of bonds, net of discounts of $1.56,884 Operating transfers: From other funds (To) other funds Revenue and other financing sources over (under) expenditures and other financing uses FUND BALANCE, BEGINNING RESIDUAL EQUITY TRANSFER FUND BALANCE, ENDING See Notes to Financial Statements. Governmental Fund Types Special Debt General Revenue Service $ - $ 384,036 $ 3,787,547 554,935 - 2,308,398 2,516,100 366,345 - 246,185 32,068 425,100 561,536 271,285 163,120 59,546 13,462 $ 7,851,630 $ 3,553,286 $ 284,747 $ 2,354,909 $ 131,781 $ 4,021,574 247,189 584,609 1,374,889 95,495 - 1,959,686 - 1,264,588 327,568 34,089 55,964 1,760,000 - 828,617 $ 10.314.950 $ 2,137,391 $ 2,588,617 $ (2,463,320) $ 1,415,895 $ (2,303,870) $ - $ - $ 967,563 6,855,922 3,767,795 - (20,263) (125,452)- $ 967,563 $ 6,835,659 $ 3,642,343 $ (1,495,757) $ 8,251,554 $ 1,338,473 6,923,911 1,147,152 2,774,206 17,744 $ 5.445398 $ 9,398,706 $ 4,112,679 -3- I 1 H Governmental Total Fund Types (Memorandu m Only) Capital Projects 1992 1991 $ 3,746,398 $ 4,130,434 $ 3,406,953 - 3,787,547 4,245,201 - 554,935 479,084 - 4,824,498 4,557,510 - 366,345 228,615 - 278,253 355,047 367,785 1,625,706 1,844,552 155,066 391,194 165,237 $ 4,269,249 $ 15,958,912 $ 15,282,199 $ 224,111 $ 2,710,801 $ 2,215,912 - 4,268,763 3,994,221 6,798,037 8,757,535 6,374,969 - 95,495 1,014,349 1,959,686 1,838,493 - 1,592,156 2,079,722 54,127 144,180 160,397 - 1,760,000 1,630,000 828.617 972,350 $ 7.076.275 $ 22,117.233 $ 20280.413 $ (Z807,026) $ (6,158321) $ (4,998.214) $ 11,568,356 $ 11,568,356 $ - 415,939 12,007,219 2,123,642 (11,861,504) (12,007,219) (2.123.642) $ 122.791 $ 11,568356 $ $ (2,684,235) $ 5,410,035 $ (4,998,214) 9,439,317 20,284,586 25,282,800 - 17.7dd - I $ 6,755,082 $ 25,712,365 $ 20,284,586 CITY OF ROSEMEAD, CALIFORNIA COMBINED STATEMENT OF REVENUE, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL - GENERAL, SPECIAL REVENUE AND DEBT SERVICE FUND TYPES Year Ended June 30, 1992 REVENUE Property taxes and special assessments other taxes Licenses and permits Intergovernmental Charges for services Fines, forfeitures and penalties Use of money and property Other EXPENDITURES Current: General government Public safety Public works Public health Public recreation Community service Capital outlay Debt service: Principal Interest Revenue over (under) expenditures OTHER FINANCING SOURCES (USES) Operating transfers: From other funds (To) other funds ! Revenue and other fmancing sources over (under) expenditures FUND BALANCE, BEGINNING RESIDUAL EQUITY TRANSFER FUND BALANCE, ENDING See Notes to Financial Statements. -4- General Fund Over (Under) Budget Actual Budget 4,376,500 3,787,547 (588,953) 488,200 554,935 66,735 3,894,730 2,308,398 (1,586,332) 333,900 366,345 32,445 280,000 246,185 (33,815) 570,000 425,100 (144,900) 25,500 163,120 137,620 $ 9,968,830 $ 7,851,630 $ (2,117,200) $ 2,288,630 $ 2,354,909 $ 66,279 3,940,628 4,021,574 80,946 874,380 584,609 (289,771) 87,000 95,495 8,495 1,902,940 1,959,686 56,746 1,225,710 1,264,588 38,878 145,180 34,089 (111,091) $10,464,468 $ 10,314,950 $ (149,518) $ (495,638) $ (2,463,320) $ (1,967,682) $ 947,300 $ 967,563 $ 20,263 $ 947,300 $ 967,563 $ 20,263 $ 451,662 $ (1,495,757) (1.947.4191 6,923,911 17,744 L1,445 ,898 I 1 r Special Revenue Debt Service Over Over (Under) (Under) Budget Actual Budget BudlYet Actual Budeel $ 350,000 $ 384,036 $ 34,036 $ $ $ 2,688,750 2,516,100 (172,650) 100,000 32,068 (67,932) 68,000 561,536 493,536 225,000 271,285 46,285 59,546 59,546 - 13,462 13,462 $ 3,206,750 $ 3,553,286 $ 346,536 $ 225,000 $ 284,747 $ 59,747 $ - $ 131,781 $ 131,781 $ - $ - $ - 447,000 247,189 (199,811) - 2,025,900 1,374,889 (651,011) - 675,500 327,568 (347,932) 213,910 55,964 (157,946) - - - - 1,760,000 1,760,000 828,617 828,617 $ 3,362,310 $ 2,137,391 $ (1,224,919) $ 2,588,617 $ 2,58017 $ - $ (155,560) $ 1,415,895 $ L571.455 $ (2363.617) $ (2303,870) $ 59,747 $ $ 6,855,922 $ 6,855,922 $ 2,588,617 $ 3,642,343 $ 1,053,726 (20,263) (20.263) $ $ 6,835,659 $ 6,835,659 $ 2,588,617 $ 1642343 $ 1,053,726 $ (155,560) $ 8,251,554 L-8 ,407.114 $ 225,000 $ 1,338,473 $ 1,113,473 1,147,152 2,774,206 $ 9,398,706 $ 4,112.679 1 CITY OF ROSEMEAD, CALIFORNIA STATEMENT OF REVENUE, EXPENSES AND CHANGES IN FUND BALANCE PENSION TRUST FUND Year Ended June 30, 1992 Operating revenue: Contributions Interest and other investment income Operating expenses: Administrative fees Pension benefits Net income FUND BALANCE, BEGINNING FUND BALANCE, ENDING See Notes to Financial Statements. 5- $ 141,435 64.185 $ 205.620 $ 5,839 20.719 $ 26.558 $ 179,062 894.927 L -1A0 3.989 1 1 1 CITY OF ROSEMEAD, CALIFORNIA STATEMENT OF CASH FLOWS PENSION TRUST FUND Year Ended June 30, 1992 CASH FLOWS FROM OPERATING ACTIVITIES Net income Adjustment to reconcile net income to net cash provided by operating activities, interest income Net cash provided by operating activities CASH FLOWS FROM INVESTING ACTIVITIES Purchase of annuity contracts Proceeds from the sale and maturity of annuity contracts Interest received on annuity contracts Net cash (used in) investing activities Net increase in cash and cash equivalents CASH AND CASH EQUIVALENTS, beginning CASH AND CASH EQUIVALENTS, ending See Notes to Financial Statements. -6- $ 179,062 (64.185) $ 114.877 $ (205,620) 26,558 64.185 $ (114,877) C 1 1 1 h 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 The criteria of oversight responsibility, special financing relationships and scope of public service was used in determining the agencies or entities which comprise the City of Rosemead, California (the City) for financial reporting purposes. Oversight responsibility is determined by the extent of financial interdependency, control over the selection of the governing authority and management, ability to significantly influence operations, and accountability for fiscal matters. Based on these criteria, the Rosemead Redevelopment Agency (the Agency) is included in the combined financial statements of the City. The Agency has the same fiscal year as the City. 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 organizations excluded from the City's reporting entity are the Rosemead Housing Development Corporation, the Fire Protection District, the Library District and the County Flood Control District. 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 within the Rosemead Project Area No. 1. -7- I NOTES TO FINANCIAL STATEMENTS ' Note I. Reporting Entity, Nature of Operations, Description of Funds and Account Groups, and Significant Accounting Policies, Continued ' Description of funds and account groups The accounts of the reporting entity are organized on the basis of funds or groups of accounts, each of which is considered to be a separate accounting entity. The operations of each fund are accounted for by providing a separate set of self-balancing accounts which comprise its assets, liabilities, equity, revenue and expenditures. The various funds and account groups are presented as follows: 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 1 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 the reliance on private vehicles. ' The Local Transportation Fund accounts for state grants used to finance the construction of bikeways and sidewalks. The Public Transportation Fund accounts 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. I 8 I r 1 1 h 1 1 1 1 I NOTES TO FINANCIAL STATEMENTS Note 1. Reporting Entity, Nature of Operations, Description of Funds and Account Groups, and Significant Accounting Policies, Continued 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 R. Z'Berg/Hams Grant Fund accounts for a state grant for preapproved park projects. The California Wildlife Grant Fund accounts for a state grant for preapproved specified park projects. The Low-Moderate Income Housing Set-Aside Fund accounts for the 2001o 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 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 acquisition or construction of major capital facilities within the Agency. Fiduciary Fund Types The Pension Trust Fund, an expendable 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. -9- I 1 1 1 1 I 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 accounts for all property and equipment except for public domain fixed assets (e.g., streets, bridges, sidewalks, curbs, gutters and storm drainage systems). The General Long-Term Debt Account Group accounts for the outstanding principal balances of all long-term debt expected to be financed from governmental fund types. Significant accounting policies Basis of accounting Governmental fund types, the expendable trust fund (Pension Trust Fund) and agency funds are accounted for using the modified accrual basis of accounting. Revenue is recognized in the accounting period in which it becomes both available and measurable. Available means collectible within the current period or soon enough thereafter to pay current liabilities. Property taxes that have been levied and are due on or before year end are recognized as revenue if they have been collected within sixty days after year end. Sales taxes are considered to be measurable when they have been collected by the City and are recognized as revenue at that time. Special assessments are recognized as revenue at the time individual installments come due. 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 this 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 of accrual include taxes and interest. Major revenues that are determined to not be susceptible of accrual because they are either not available soon enough to pay liabilities of the current period or are not objectively measurable include hotel occupancy taxes, licenses, permits, fines and forfeitures. -10- I 1 1 11 1 1 1 1 1 11 I NOTES TO FINANCIAL STATEMENTS Note 1. Reporting Entity, Nature of Operations, Description of Funds and Account Groups, and Significant Accounting Policies, Continued 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 ninety days after year end; otherwise, it is recorded as an expenditure when it is paid. 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. Investment earnings are accrued. 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 which are stated at market value. No loss is recognized when market values decline below costs since it is generally the policy of the City to hold such investments until they mature. Investment earnings are allocated based on the source of funds. Receivables Property taxes receivable represent the uncollected March 1, 1992, levy which is due to the Agency at June 30, 1992. Property taxes attach as an enforceable lien on property as of March 1, and are due and payable in two equal installments on the following November 1 and February 1. Unpaid taxes become delinquent on December 10 and April 10. An allowance based on historical collection experience is provided for uncollectible taxes. 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. - 11 - NOTES TO FINANCIAL STATEMENTS Note 1. Reporting Entity, Nature of Operations, Description of Funds and Account Groups, and Significant Accounting Policies, Continued 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 1 1 1 1 I 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 up to 240 hours of compensatory time. Any hours in excess of 240 are paid to the employee. The vested portion of vacation and sick leave by employees at June 30, 1992 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 repaid within one year is included in the General Long-Term Debt Account Group. Memorandum totals Total columns on the combined financial statements are captioned "Memorandum Only" to indicate that they are presented only to facilitate financial analysis. Data in these columns do not present financial position or results of operations in conformity with generally accepted accounting principles. Interfund transactions have not been eliminated in arriving at these amounts. Note 2. Budget Matters The annual budget adopted by the City Council provides for the general operation of the City. It includes proposed expenditures and estimated revenues for all governmental fund types except the Capital Projects Fund. Actual expenditures may not exceed appropriations at the department level. -12- I NOTES TO FINANCIAL STATEMENTS 1 Note 2. Budget Matters, Continued The City Manager is authorized to transfer budgeted amounts between funds within the ' same department. Budget amendments were nominal for the year. Budget-to-actual comparisons are not presented for the Capital Projects Funds since the budget relates to all future appropriations as well as current appropriations. Budgets presented in this report for comparison to actual amounts are presented in ' accordance with generally accepted accounting principles. The modified accrual basis of accounting is employed in the preparation of the budget. Reported budget amounts represent the original adopted budget as amended. ' In all budgeted funds, unexpended budgeted amounts lapse at the end of the budget year. I Note 3. Cash and Investments The components of cash and cash investments at June 30, 1992 are as follows: Cash in bank Time certificates of deposit $ 578,237 4,774,399 $ 5,352.636 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 1 allocated monthly to each participating fund based on a formula that takes into consideration each fund's average investment in the pool. ' At year end, the carrying amount of the City and the Agency's deposits were $5,352,636 (cash and cash investments above) and the bank balance was $5,553,576. A summary of collateral ization of the bank balances is presented below: Insured or collateralized with securities held by the City or its agent in the City's name $ 825,646 Uncollateralized (in accordance with GASB 3), this category ' includes any bank balance that is collateralized with securities held by the pledging financial institution or by its trust department or agent but not in the City's name ' although balances so collateralized meet the requirements of state law 4.727.930 11 L-5.5 3 576 1 - 13 - I 1 L1 I NOTES TO FINANCIAL STATEMENTS Note 3. Cash and Investments, Continued State statutes authorize the City and the Agency 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. Cash and investments with fiscal agent as of June 30, 1992, consisted of $1,215,272 of money market funds (of which $101,602 were insured of collateralized with securities held by the City or its agent in the City's name) and $2,791,380 of U.S. government and government agency securities (with a market value of $2,796,400). 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 State and municipal bonds Corporate bonds Investment in mutual fund Investment in Slate Treasurer's Investment Pool Total other investments $ $ $ 2,545,211 $ 2,545,211 $ 2,605,781 193,300 193,300 207,681 5,371,612 5,371,612 5,407,225 $ - $ - $ 8,110,123 $ 8,110,123 $ 8,220,687 450,005 451,448 7,287,720 7,287,720 $15,847,848 $15,959,8.55 Annuity contracts and cash in bank include $190,141 and $21,307, respectively, in the City's deferred compensation plan as of June 30, 1992. The annuity contracts are recorded at market value and would be included in Category #3. -14- I NOTES TO FINANCIAL STATEMENTS Note 3. Cash and Investments, Continued 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 2 Uninsured and unregistered investments for which the securities are held by the financial institution or by its trust department or agent in the City's namel.5 3 Uninsured and unregistered investments for which the securities are held by the financial institution, broker or dealer, or by its trust department or agent but not ' in the City's name. Note 4. Receivables Receivables as of June 30, 1992 consist of the following: ' Special Capital Debt General Revenue Projects Service Total ' Property lax increment $ - $ - $ 43,640 $ - $ 43,640 Accrued interest 72,180 84,443 147,426 106,027 410,076 Due from local utility companies (A) 605,863 - - - 605,863 ' Due from other governmental agencies 547,000 770,010 - - 1,317,010 Transient occupancy tax 141,430 141,430 Other 148.877 - 148,871 $ 1,515,344 $ 854,453 $ 191.066 $ 106,027 $2,666,890 (A) During the year ended June 30, 1990, the Agency approved a reimbursement agreement with a local utility company, advancing the utility company funds required to replace various water mains. The total amount advanced under this agreement was $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 fifteen noninterest-bearing annual installments of $35,987 and $1,958, with the final installments due June 30, 2005 and September 30, 2006. ' Also, during the year ended June 30, 1987, the Agency approved a similar 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 forty annual installments of $12,345, with the final installment due June ' 30, 2027. ' - 15 - ' NOTES TO FINANCIAL STATEMENTS Note 5. Interfund Receivables and Payables ' Interfund receivables and payables as of June 30, 1 992 are as follows: ' Interfund Funds Receivables Payables General Fund $ 1,035,201 $ Special Revenue Funds: ' Traffic Safety $ $ 6,632 Community Development Block Grant - 47,187 California Wildlife Grant - 45,768 R. Z'Berg Harris Grant 8,817 Low-Moderate Income Housing Set-Aside Fund $ 6,762 $ 762 $ $ 6 108 404 , , Capital Projects Fund $ - $ 933,559 $ 1,041,963 $ 1,041,963 Note 6. Properly and Equipment Changes in property and equipment during the yea r ended June 30, 1992 w ere as follows: Balance Balance June 30, June 30, 1991 Acquisitions Disposals 1992 Land $ 2,893,234 $ - $ $ 2,893,234 Buildings and improvements 3,421,367 21,288 3,442,655 ' Vehicles 261,091 Furniture and office equipment 567,626 66,363 19,206 203,351 308,248 770,977 Special equipment and machinery 464,814 24,249 489,063 Other improvements 748,492 - - 748,492 $ 8 356 624 $ 3 5 251 $ 19 206 652 $ 8 669 , , 1 , , , , I -16- i 1 I I 1 I NOTES TO FINANCIAL STATEMENTS Note 7. Pension Plan and Deferred Compensation Agreements The City has a defined contribution pension plan. The plan covers substantially all employees and is funded by a group annuity insurance contract. Employees eligible for the plan are vested 100% upon completion of five years of full-time employment. Employees are not vested before five years. The contributions to the plan are at the discretion of the City Council. This plan does not allow for employee contributions. The total payroll for employees covered by this plan for the calendar year ended December 31, 1991 was $1,009,063. The total payroll for all employees for the calendar year ended December 31, 1991, was $1,825,195. The total pension contribution for the year ended June 30, 1992 was $141,435 which represented 14% of the City's current year covered payroll. The value of the annuity contract was $1,073,989 as of June 30, 1992. The City has a deferred compensation plan which is organized under Internal Revenue Code 457. The plan allows eligible employees to tax 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 $211,448 at June 30, 1992. 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 deposits. 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 an ordinary prudent investor. The administrative and reporting functions of the plan are being handled by an insurance company. 17- I I I I [1 I I NOTES TO FINANCIAL STATEMENTS Note 8. Self-Insurance Obligation The City of Rosemead is a member of the Southern California Joint Powers Insurance Authority (a joint powers authority of 65 California cities) for the purpose of pooling their losses and claims of general liability with those of other member cities. The Authority is governed by the Board of Directors which is composed of one representative and an alternate selected by the City Council of that City. Each board member has one vote regarding control of all budgeting, financial and management issues coming before the Board of Directors. For comprehensive general liability claims, the self-insurance retention level is $20,000, with a pro rata share of all members' incurred losses up to $500,000 and excess insurance coverage up to $10,000,000 per occurrence. The coverage includes bodily injury, property damage, errors and omissions, and personal injury. Note 9. Long-Term Debt Tax Allocation Notes, Series 1987 In August 1987, $14,930,000 of bonds were issued by the Agency to finance public improvements within the Agency's Project Area No. 1. The bonds outstanding bear interest from 7.75% to 9.20% with interest payable semiannually on September 1 and March 1. Principal matures annually on September 1 through 1995. Payment of the bonds is collateralized by a pledge of tax revenues to be received by the Agency. Subordinate Lien Tax Allocation Bonds, Series 1991 In October 1991, the Agency issued $11,725,240 of bonds to finance public improvements within the Agency's Project Area No. 1. The bonds outstanding bear interest ranging from 5.80% to 6.75% with interest compounded on each October 1 and April 1 and payable at maturity. Principal matures annually on October 1, 1996 through 2002. Payment of the bonds is collateralized by a pledge of tax revenues to be received by the Agency. 18- I I I 1 I I I 1 LJ NOTES TO FINANCIAL STATEMENTS Note 9. Long-Term Debt, Continued Compensated absences That portion of the liability for the vested compensated absences totalling $111,312 which is not expected to be paid from available resources is reported in the General Long-Term Debt Account Group. The following is a summary of the general long-term debt transactions for the year ended June 30, 1992. Accrued Tax Tax Vacation Allocation Allocation and Bonds Notes Compensatory Series 1991 Series 1987 Time Total Balance, June 30, 1991 $ - $ 10,365,000 $ 87,489 $ 10,452,489 Proceeds of long-term debt 11,725,240 - - 11,725,240 (Payments) of principal - (1,760,000) - (1,760,000) Increase (decrease) 23.823 23.823 Balance, June 30, 1992 $ 11,725,240 $ 8,605,000 $ 111,312 $ 20,441,552 The annual requirements, principal and interest, to amortize the outstanding debt as of June 30, 1992, are as follows: Tax Tax Allocation Allocation Years Ending Bonds Notes June 30. Series 1991 Series 1987 Interest Total 1993 $ - $ 1,900,000 $ 669,813 $ 2,569,813 1994 - 2,055,000 496,781 2,551,781 1995 - 2,230,000 309,312 2,539,312 1996 - 2,420,000 105,875 2,525,875 1997 2,065,091 - 679,909 2,745,000 Thereafter 9.660.149 6,809,851 _ 16,470,000 $ 11,725,240 $ 8,605,000 $ 9,071,541 $ 29,401,781 19- I J 1 I 1 I 1 1 i I NOTES TO FINANCIAL STATEMENTS Note 10. Commitments and Contingencies Low and Moderate Income Housing Set-Aside Fund Under state law, the Agency is required to set aside a portion of its property tax increment revenue for low and moderate income housing. The Agency has made findings that, for the year ended June 30, 1991, it was allowed to defer funding of the set aside. As of June 30, 1992, the accumulated set-aside amount not yet funded was approximately $3,650,000. The law requires the Agency to devise a plan to fund the accumulating amount and to begin funding it by 1996. In October 1991, the Agency funded its Low-Moderate Income Housing Set-Aside Fund with $6,855,922 of proceeds from the Tax Allocation Notes, Series 1987. This amount was deposited in the Low-Moderate Income Housing Fund to satisfy set-aside requirements for fiscal years 1991-1992 through 2002-2003. While the law in California is not specific on the issue, the Agency takes the position that the Housing Fund set-aside requirement may be prepaid in this manner. As a result of such deposit, the $870,700, otherwise required to be deposited in the Low- Moderate Income Housing Fund in each such year, will be made available as tax revenues. Rosemead Housing Development Corporation On March 16, 1992, the Agency established the Rosemead Housing Development Corporation (RHDC), a local nonprofit housing development corporation organized under section 501(c)(3) of the Internal Revenue Code of 1986. The corporation was established to develop, construct, finance and assist with low and moderate income housing and to assist the Agency with redevelopment purposes related to housing. The RHDC will be financed by the Agency and will be managed by a contracted management company. The corporation's year end is June 30. As of June 30, 1992, the RHDC is not considered a component unit of the City; however, starting with the fiscal year 1993-1994, the RHDC will be considered a component unit of the City according to Governmental Accounting Standard No. 14, which takes effect for fiscal years beginning after December 15, 1992. -20- I NOTES TO FINANCIAL STATEMENTS Note 10. Commitments and Contingencies, Continued Litigation ' The City is a defendant in a lawsuit along with 23 other cities for reimbursement of landfill cleanup costs of hazardous waste dumped between 1948 and 1984. The plaintiffs claim that the cities either accepted for transport or arranged for disposal or treatment of municipal waste which contained hazardous materials. The plaintiffs also claim that these materials have been released from the landfill into the environment. The trial has been divided into several phases. On July 21, 1992, the court announced its intention to rule against the defendant cities on the issue of liability. No trial dates for the remaining phases of the trial have been set. The City intends to defend the case vigorously and may assert claims for I indemnity against other third party defendants which, if successfully litigated, would offset, at least partially, any recovery against the City. The parties have engaged in settlement negotiations but no agreement has yet been reached. Note 11. Subsequent Events Low and Moderate Income Housing Set-Aside Fund In September 1992, the State of California passed its annual budget for the period July 1, 1992 through June 30, 1993. Included in the budget were substantial cuts in funding to cities, including Redevelopment Agencies, to help offset the cost of education in California. ' The funding cuts are expected to equal approximately 16% of gross property tax increment of the 1990-1991 fiscal year, which equate to approximately $581,000 for the Agency. This amount is required to be paid by May 10, 1993. Employee benefits i On September 8, 1992, the City passed two resolutions that transfer the City's employee health care and retirement programs to the California Public Employees Retirement System (PERS), effective on November 1, 1992. I 1 -21- I NOTES TO FINANCIAL STATEMENTS 1 Note 11. Subsequent Events, Continued ' As of October 23, 1992, the City had approximately $1,084,000 in its retirement fund which was on deposit with the Equitable Life Insurance Society. The PERS retirement plan will ' cover only current eligible employees, including city council members and the city attorney. All former employees will remain covered under the old plan. The City will transfer $956,000, which includes a $160,000 contribution for the fiscal year 1992-1993, to PERS from the Equitable while the remaining $288,000 will remain in the Equitable to fund existing obligations to former employees. In addition to the change in retirement benefits described above, the City also switched to the PERS health care plan for both active employees and retirees. The City pays 100% of ' the cost of the premiums for active employees and a calculated amount for retired employees based on the number of years of employment with the City. The retired employees are liable for the difference, if any. 1 1 H 1 1 1 -22- I ►rL McGLADREY & PULLEN Certified PublicAccountants and Consultants INDEPENDENT AUDITORS' 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, California as of and for the year ended June 30, 1992 and have issued our report thereon dated October 23, 1992. These general purpose financial statements are the responsibility ' of the City's management. Our responsibility is to express an opinion on these general purpose financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards and the standards for financial audits contained in the "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. ' I Pasadena, California ' October 23, 1992 1 -23- 1 CITY OF ROSEMEAD, CALIFORNIA SCHEDULE OF FEDERAL FINANCIAL ASSISTANCE Year Ended June 30, 1992 Catalog of Federal Domestic Assistance Federal Grantor/Pass-Through Grantor/Program Title Number Expenditures U.S. Department of Housing and Urban Development: Passed through Los Angeles County Community Development Commission - Community Development Block Grant Program - Entitlement Grants 14.218 L-522,227 -24- I SECTION II - COMPLIANCE MATTERS AND INTERNAL ACCOUNTING AND ' ADMINISTRATIVE CONTROLS 1 I 1 1 0 I 1 1 1 LNNIS McGLADREY & PULLEN Certified Public Accountants and Consultants INDEPENDENT AUDITORS' GOVERNMENT AUDITING STANDARDS REPORT ON COMPLIANCE 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, 1992, and have issued our report thereon dated October 23, 1992. 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. 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. The results of our tests indicate that, with respect to the items tested, the City of Rosemead, California, complied, in all material respects, with the provisions referred to in the preceding paragraph. 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 provisions. -25- 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. dulL~-N- Pasadena, California October 23, 1992 -26- I r. McGLADREY & PULLEN Certified Public Accountants and Consultants i INDEPENDENT AUDITORS' 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, 1992, and have issued our report thereon 1 1 1 I dated October 23, 1992. 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. In planning and performing our audit of the financial statements of the City of Rosemead, California, for the year ended June 30, 1992, we considered its internal control structure in order to determine our auditing procedures for the purpose of expressing our opinion on the financial statements and not to provide assurance on the internal control structure. 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. -27- I I 1 1 I For the purpose of this report, we have classified the significant internal control structure policies and procedures in the following categories: • Revenue; fee, service and miscellaneous sources • Receipts • Expenditures/expenses - Purchasing - Acquisition and disposal of fixed assets - Cash disbursements - Payroll • Financing - Investments - Debt issuance • Financial reporting For all of the internal control structure categories listed' above, 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. 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 reportable condition in which the design or operation of one or more of the specific 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. We noted no matters involving the internal control structure and its operation 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 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. Pasadena, California October 23, 1992 -28- 0~ 0°GC~~ 1 1 ~I McGLADREY&PiJLLFN Certified PublicAccountants and Consultants' i INDEPENDENT AUDITORS' REPORT ON COMPLIANCE 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, 1992, and have, issued our report thereon dated October 23, 1992. We have also audited the City of Rosemead, California's compliance with the requirements governing: • types of services allowed or not allowed; • reporting; • timing of expenditures; • environmental reviews; and • program income; 1 0 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 or used for matching were determined,in accordance with OMB Circular A-87 and OMB Circular A-102. 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, 1992. 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. - 29 - 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. In our opinion, 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 used for matching in accordance with the requirements of OMB Circular A-87 and OMB Circular A-102. ' that are applicable to each of its major federal financial assistance programs for the year ended June 30, 1992. 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. G~uLfl.- Pasadena, California October 23, 1992 1 -30- McGLADREY & PULLEN Certified Public Accountants and Consultants i INDEPENDENT AUDITORS' REPORT ON COMPLIANCE WITH THE GENERAL REQUIREMENTS I 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, 1992, and have issued our report thereon dated October 23, 1992. We have applied procedures to test the City's compliance with the following requirements applicable to its federal financial assistance programs, which are,identified in the schedule of federal financial assistance, for the year ended June 30, 1992: • 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 "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 material instances of noncompliance with the requirements listed in the second paragraph of this report. With respect to items not tested, nothing came to our at that caused us to believe that the City had not complied, in all material respects, with those requirements. 1 -31- ' 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. ~ d ' Pasadena, California October 23, 1992 [J I I I 1 -32- MCGLADREY & PULLEN Certified Public Accountants and Consultants INDEPENDENT AUDITORS' 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, 1992, and have issued our report thereon dated October 23, 1992. We have also audited the City's compliance with requirements applicable to major federal financial assistance programs and have issued our report thereon dated October 23, 1992. 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 a major federal financial assistance program. In planning and performing our audits for the year ended June 30, 1992, 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 program and not to provide assurance on the internal control structure. 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 policies and procedures relevant to our audit of the financial statements in a separate report dated October 23, 1992. 1 -33- 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 procedures used in administering federal financial assistance programs in the following categories: 1 General requirements: • Political activity • Davis-Bacon Act • Civil rights enforcement and administration • Cash management Real property acquisition and management ' • Federal financial reports • Allowable costs/costs principles • Drug-free workplace • Administrative requirements Specific requirements: • Types of services allowed and unallowed • Reporting • Cost allocation • timing of expenditures • environmental reviews • program income 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. -34- I ' During the year ended June 30, 1992, the City expended 100 percent of its total federal financial assistance under major federal financial assistance programs. 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 each of the City's major federal financial assistance programs, which are 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 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 noncompliance with laws and regulations that would be material to federal financing assistance programs 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 operation 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 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 I I "Yri b:ad./ r d ~GLC C~G~ Pasadena, California October 23, 1992 I I ' -35-